PETALING JAYA: Beer sales in Malaysia are expected to increase this year, says an investment bank despite the recent US Surgeon General calls for cancer warnings on alcoholic drinks.
Hong Leong Investment Bank (HLIB) Research said more alcoholic drinks are to be sold this year on the back of higher minimum wage at RM1,700 per month, steady labour market growth and tourist arrivals.
The report by the research house, however, did not mention the US Surgeon General advisory as a risk to local beer sales.In the advisory issued on Jan 3, US surgeon general D. Vivek Murthy said alcohol contributes to 100,000 cancer cases and 20,000 related deaths each year in the world’s biggest economy.
Risks aside, HLIB Research said listed brewers such as Carlsberg Brewery Malaysia Bhd
and Heineken Malaysia Bhd may be brought back into the limelight this year.It also said that a stronger ringgit in 2025 would lower raw material costs and improve brewers’ profit margins.
The fact that brewers have already adjusted beer prices in April 2024 would help the margin expansion.
“Major raw materials, such as aluminium and barley, have corrected from their peaks and are now trading near post-correction lows. In addition, the anticipated strength of the ringgit in 2025 presents an opportunity for margin expansion for brewers. “Our economics team forecasts the ringgit to appreciate broadly to an average rate of RM4.35 against the US dollar, with an end-year target of RM4.10,” stated the research house.
The earnings outlook for brewers in 2025 appears promising, supported by more sustainable growth drivers compared with the price hike-driven earnings of 2023 to 2024.
Going forward, HLIB Research foresees a more balanced and lasting growth trajectory for the brewers, which could return the industry to the spotlight after years of neglect by the market.
It added that brewers’ current valuations remain attractive and are trading below their five-year mean, complemented by attractive dividend yields of 5.5% to 6% in the financial year of 2026 (FY26).
“Among the two brewers listed on Bursa Malaysia, we believe Heineken is the better proxy to capitalise on the anticipated stronger beer sales and margin expansion in the Malaysian market, given that 100% of its sales are derived from this market, compared with Carlsberg’s 70%.
“Additionally, the latest survey by the Monetary Authority of Singapore forecasts Singapore’s economic growth to slow to 2.6% in 2025, down from 3.6% in 2024, with private consumption growth expected to decelerate to 3.3% from 6.1%.
This suggests a lower growth from the Singapore sales for Carlsberg.
“This outlook is in line with our forecast, where Heineken’s top line is expected to grow at a stronger 5% year-on-year (y-o-y), compared with Carlsberg’s 2.5% y-o-y.”
HLIB Research has a “buy” call on both brewers as the risk-to-reward profile for both is tilted to the upside.
The sector also offers exposure to the ongoing tourism recovery which still has legs to go. In the first nine months of FY24, Heineken and Carlsberg’s financial results significantly exceeded HLIB Research’s initial forecasts.
Given the historically stronger sales performance in the fourth quarter amid festive season, both companies are on track for a record earnings year in FY24.
