PETALING JAYA: Local brewers continue to offer exposure to the economic reopening play, post-Covid 19, via the tourism angle, which still has legs to go.
Hong Leong Investment Bank (HLIB) Research said this of Heineken Malaysia Bhd and Carlsberg Brewery Malaysia Bhd, adding that it had “buy” ratings on both counters.
“For British American Tobacco Bhd, we see upside potential to the group’s earnings from declining illicits, coupled with its generous dividend yield of 8.6%,” said the research house, which also has a “buy” call on the company.
In a report, HLIB Research said despite the absence of a major football event in 2023 and the fading of pent-up demand, brewers are expected to still post year-on-year growth in earnings.
This is premised on the absence of prosperity tax, full-year reflection of price hikes and continued recovery in tourist arrivals.
“Tourist arrivals have thus far exceeded the government’s expectations and this has led to a revision in targets from two million to 4.5 million and to 9.2 million.
“Nevertheless, this is still a far gap from pre-pandemic levels of 26.1 million in 2019, suggesting there is still more legs for the recovery trend to continue into 2023,” it said.
The research house said a key catalyst would be China’s potential reopening in 2023 that seems increasingly likely following the loosening of Covid restrictions in stages since November.
“To note, tourists from China accounted for 11.9% of tourists pre-pandemic (2019),” it said.
On the cost front, brewers are relieved by the declining barley and aluminium prices.
“While there is risk of beer demand slowing down due to inflationary pressures, higher interest rates and softer economic growth in 2023, we expect beer to continue retaining its inelastic properties – after all, it remains one of the cheapest alcoholic drinks the market,” HLIB Research added.
It noted that in the case of no major policy changes in the new upcoming “Budget 2023-2.0”, the measures introduced to curb smuggling activities auger well for the sin sector.
“To recap, the government has tightened enforcement against smuggled tobacco and alcoholic beverages by limiting the import of cigarettes and alcoholic beverages to valid ports and limiting trans-shipments of alcoholic beverages to certain ports.
“These measures are expected to lift tobacco player’s earnings, as the illicit market share still stands at a buoyant level of 56.1% in the third quarter of 2022.
“Same goes for brewers, whose market share of illicit beers is estimated to be around 20% and 80% in Peninsular Malaysia and East Malaysia, respectively, based on an estimation by the Confederation of Malaysian Brewers Bhd in 2018,” it said.