PETALING JAYA: The brewery sector is expected to see a gradual recovery in investor sentiment despite near-term volume headwinds.
This is as the sector’s risk-reward profile becomes more appealing following a sharp correction in share prices after the excise duty hike announced in November 2025, according to Hong Leong Investment Bank (HLIB) Research.
It maintained its “overweight” call on the sector, arguing that concerns over weaker beer consumption have largely been priced in by the market.
Sector valuations are currently trading at about 1.2 standard deviations below their five-year mean, while brewers have demonstrated their ability to preserve profitability even in challenging demand conditions.
“We think the muted volume outlook for brewers is largely understood by the market,” HLIB Research said, adding that it is “not overly concerned that softer 2026 volume will derail earnings”.
The research house pointed to financial year 2025 (FY25) as evidence of the industry’s resilience.
Despite an 8% decline in sales volume, brewers delivered record earnings, supported by favourable product mix, pricing initiatives and disciplined cost management.
HLIB Research expects market sentiment to stabilise over time, noting that previous excise duty increases have historically been spaced more than five years apart.
Among the two listed brewers, it prefers Heineken Malaysia Bhd
, maintaining a “buy” recommendation with a target price of RM27.12.
It also has a “buy” call on Carlsberg Brewery Malaysia Bhd with a RM24.86 target price.
The preference for Heineken stems from the potential earnings upside from its emerging export model.
While first quarter of FY26 (1Q26) results were mixed, HLIB Research believes that 2Q26 will provide a clearer indication of underlying beer demand because it will not be influenced by the Chinese New Year sales window.
The key issue for investors, it said, will be whether consumption remains resilient amid softer consumer sentiment and possible disruptions to tourism linked to the ongoing Iran conflict.
Any boost from the 2026 Fifa World Cup is also expected to be less significant than in previous tournaments because matches are likely to be played during late-night or early-morning hours in Malaysia.
“For the sector to re-rate, we think the market needs to see convincing evidence of volume stabilisation or recovery,” the research house said.
Carlsberg posted a resilient performance in Malaysia during 1Q26, delivering 3.3% year-on-year (y-o-y) earnings growth.
In contrast, Heineken’s earnings disappointed both on a y-o-y and quarter- on-quarter basis, triggering an 8.5% decline in its share price after the results announcement.
Management attributed the weaker performance to a deliberate and proactive reduction of the group’s sales ex-brewery to align with the challenging market dynamics.
However, HLIB Research said the explanation lacked clarity, particularly when compared with Carlsberg’s stronger showing.
The research house believes the weakness was likely due to softer replenishment orders following inventory build-up by distributors in 4Q24 ahead of the November price increase, rather than a structural deterioration in demand.
Reflecting on Heineken’s softer start to the year and its estimated 60% share of Malaysia’s beer market, HLIB Research lowered its FY26 industry volume forecast to about 1.93 million hectolitres, representing a 0.5% decline from a year earlier and marking the lowest level since the post-pandemic reopening in 2022.
Looking ahead, Singapore could emerge as a key catalyst for volume growth.
HLIB Research forecast Carlsberg’s group sales volume to rise 0.9% in 2026, driven mainly by a 2.5% growth in Singapore through an expanded brand portfolio that includes Birrificio Angelo, Garage, Wu Su Red and Chong Qing.
For Heineken, the opportunity could be even larger, although benefits are expected to materialise later.
The research house estimates that Singapore export arrangements could generate about 300,000 hectolitres of additional beer volume for supply from Malaysia and Vietnam.
If 80% is allocated to Malaysia, this would translate into roughly 240,000 hectolitres annually, equivalent to about 20% of Heineken Malaysia’s domestic volume base.
HLIB Research has yet to incorporate this potential upside into its forecasts, pending greater clarity on volume allocation and export margins.
As a result, the company’s investor briefing scheduled for September 2026 is expected to be closely watched for indications of whether the arrangement will be earnings accretive.
Meanwhile, one analyst said current sector valuations suggest much of the near-term uncertainty has already been factored into share prices.
“Nevertheless, the market is likely to focus on signs of demand stabilisation over the coming quarters,” he told StarBiz.
