Maybank Research positive on brewers, neutral on consumer sector


KUALA LUMPUR: Maybank Investment Bank (IB) Research is Neutral on the Malaysian consumer sector but is positive on the brewers, Carlsberg Brewery Malaysia Bhd (Carlsberg) and Heineken Malaysia Bhd (Heineken).

“While we remain cautious of the broader market on still weak consumer sentiment, we take comfort in managements’ continuous focus on cost management which should help support earnings growth in the near term,” it said in a note on Friday.

While earnings growth is likely to be in the single-digit, the research house said forecasted dividend yields remained decent at 5.6% or 5.4% for Carlsberg and Heineken and this should provide support to share prices.

“Moreover, following the recent adjustment of excise taxes in March 2016 for the brewers, we believe regulatory risks have been reduced slightly, implying less downside risk to earnings for now,” it added.

For Carlsberg, Maybank Research maintained its Buy call and earnings forecast and it raised its target price to RM14.70 from RM14.20.

It also maintained its Buy call and earnings forecast for Heineken but raised its target price to RM17.50 from RM15.20.

“Between the two brewers, we prefer Carlsberg for its long-term growth prospects (Singapore export market). Exposure to the Singapore market also serves as a natural hedge should the US dollar strengthen against the ringgit,” it said.

On the tobacco industry, the research house says it was negatively impacted, with a 30% on-year fall in the first quarter of the yeat, following the surprise excise tax hike of about 40% in November 2015.

“Malaysia has been part of the WHO Framework Convention on Tobacco Control (FCTC) since 2005, hence, we feel regulatory risks persist for the sector. 

“Malaysia’s excise taxes now account for about 50% of retail price and this suggests upside for more excise taxes. 

“However, following the shock to industry volumes post the recent excise hike, we feel that an excise tax freeze might be a possibility,” it said.

On the government’s move to extend the Price Control and Anti-Profiteering Act (PC&APA) until Dec 31, 2016, the research house noted that companies were allowed to increase prices to maintain margins.

“While it may seem that companies are less flexible to adjust prices of products and merchandise for a while longer, we note that companies are allowed to increase prices to maintain margins.

“For example, higher selling prices of goods or services are justified if they are to maintain margins,” it said.

On the minimum wage hike effective July 1, 2016, Maybank Research said 7-Eleven Malaysia Holdings Bhd could relatively be impacted more as the majority (about 75%) of its total staff force of 12,000 are paid below the new minimum wage. 

“In the near term, 7-Eleven Malaysia would have to make some price adjustments on merchandise to help cushion the impact. 

“In the longer term however, since this is also an industry wide issue, we expect it and its other peers to pass through the higher staff costs through higher merchandise price,” the research house said.

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