Easing social restrictions a boon for brewers

KUALA LUMPUR: There could be some near-term upsides for brewers over the near-term as the resumption of operations for bars and pubs in the country will translate to higher levels of alcohol sales, says Hong Leong Investment Bank (HLIB) research.

The easing social restrictions following the country's transition to the endemic phase of Covid-19 include normalising operating hours for eateries and pubs, the removal of the 50% capacity limit for indoor events and the reopening of international borders.

"We project sales volume for Carlsberg to recover by 17% and 8% in FY22f and FY23f, while we have pencilled in a 17% and 8% recovery in sales volume for Heineken in FY22f and FY23f," said HLIB.

However, the research firm noted that beer consumption will only return to pre-Covid levels in FY23 due to the prolonged closure of nightclubs and permanent closure of on-trade channels during the pandemic.

HLIB also brewers to weather rising production costs as they will be able to raise prices to pass on costs to consumers given the relatively inelastic demand for beer.

"The brewers 'premiumisation push' coupled with better economies-of-scale (arising from the absence of brewery closure), are expected to support the recovery in margins going forward," it added.

HLIB also expects brewers' dividend payouts to normalise, especially Carlsberg, which saw a decline in dividend payout to 75% and 85% in FY20 and FY21 respectively.

"Following the expected recovery in alcohol consumption, we forecast that both the brewers will revert to payout ratio of 100% in FY22f and beyond, and that should translate to decent dividend yield of 4.1% and 4.4% for Carlsberg and Heineken, respectively," said HLIB.

The broker upgraded its recommendations for Carlsberg and Heineken to "buy", and consequently its rating on the brewery sector to "overweight".