KUALA LUMPUR: CIMB Equities Research is retaining its neutral call on the brewery sector after the government raised the the legal age to purchase alcoholic drinks in Malaysia was raised to 21 from 18, effective Tuesday.
The research house said on Wednesday although this news may be perceived negatively, it was of the view that there should not be a significant downside impact on the demand for alcoholic drinks.
“Currently, the brewery sector is trading at 18.9 times CY19 P/E, which we believe is fair. This is in view of the persistent near-term regulatory risks, such as potential increase in alcohol tax in the upcoming Malaysia Budget 2019, and easy availability of illicit alcoholic drinks in Malaysia which could cap volume.
“Nevertheless, the sector’s FY18-20F yields of 5.1-5.5% should support share prices, in our view,” it said.
The research house said at this juncture, it was not overly concerned by these new rules. Based on its earlier conversations with brewers under its coverage, costumers in the 18-21-year age group were not significant purchasers of alcohol products. This is mainly due to lack of discretionary spending power.
“Also, our channel checks indicate that the 18-21-year age group has limited access to on-trade market locations, as most of these locations enforce a minimum entry age of 21 years,” it said.
It has a hold call for Carlsberg Brewery (M) with a target price of RM20.20. It closed at RM17.26.
Carlsberg currently has an estimated 40% of Malaysia’s malt liquor market, with its range of beers that includes its key brand, Carlsberg, and other brands, such as Asahi, Heineken Malaysia Bhd
.
As for Heineken, it remains the market leader in Malaysia and holds 60% of the domestic market share. Its brands include Heineken and Guinness.
CIMB Research has a hold call with a target price of RM20.50. It closed at RM17.62.
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