A bartender serves a glass of Carlsberg beer at a bar in Kuala Lumpur, Malaysia in this July 4, 2012 file photo. - REUTERS
KUALA LUMPUR: Affin Hwang Capital Research is maintaining its Neutral rating on the brewery sector.
It said on Monday both Heineken and Carlsberg have performed well with 8% and 25% year-to-date gains respectively in share prices.
“Trading at 20 to 21 times FY18E price-to-earnings ratio (PER) with decent dividend yield of 4%-5% for FY18E-19E, we think the positive factors have been largely priced in,” it said.
The research house revised Heineken’s FY18E-20E earnings marginally by -1.5%-0.8% and slightly adjust Heineken’s target price (TP) from RM20.10 to RM 20.75.
Also, Carlsberg’s earnings are revised by -3%-1% to reflect actual figures in their recently released annual reports, it said.
“Nevertheless, we revise up Carlsberg’s TP to RM18.60 from RM16.00, reflecting a higher revenue growth of 5% on-year in FY19-24E (vs. 3% on-year previously) as the results of Carlsberg’s ‘premiumnisation strategy’ was better than our expectation and we believe the momentum should sustainable,” it said.
Brewery sector’s earnings ended FY17 within expectations. Going into FY18, the research house expects a better year in terms of stronger total beer consumption backed by better private consumption spending.
Affin Hwang Research said both brewers also launched several new premium products to attract more drinkers, which should improve the product mix and profit margins.
“Our studies suggest that 2018 FIFA World Cup may not have a significant impact on the sector. We maintain HOLD ratings on Heineken and Carlsberg as we believe both are fairly valued. But we prefer Carlsberg in the sector for its stronger earnings growth,” it said.
The research house believes that the total beer consumption in 2018 should show better growth than 2016 and 2017 even without accounting for potential catalyst from the FIFA World Cup event.
It pointed out that the implementation of GST in 2015 and excise duties hike in 2016 had dampened beer consumption for the past two years.
“Barring the risk of potential excise duties hike, we forecast the total volume to grow at higher rate of 4% per annum in 2018 and 2019 underpinned by a recovery in private consumption.
“We expect revenue of both Heineken and Carlsberg to benefit from better beer volume growth and premium-product promotion strategy to drive double-digit growth for the segment,” it said.
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