PETALING JAYA: Demand trends are normalising post-super-normal 2022 and the brewery industry players including Heineken Malaysia Bhd
is evolving to meet the demand of younger adults, with a boost from inbound tourists.
A further recovery in tourist arrivals, which was a significant contributor to the 2019 jump in industry revenue, would support demand.
CGS International (CGSI) Research said improved economic activity going into the second half of 2024 would also be a positive for the sector.
The research house believed younger adults have incrementally switched to liquor and craft beer products, which are not distributed or manufactured by the listed brewers under its coverage.
UOB Kay Hian Research, meanwhile, said the outlook for brewers appears mixed as it believed a recovery in tourist arrivals could be a major catalyst for volume growth.
But persistent concerns about inflation and cost of living, coupled with the weakening ringgit, could result in weaker consumption overall, especially following the service tax hike by 2% in March.
CGSI Research has thus updated its forecasts for Heineken post-fourth quarter 2023 (4Q23) results, with a reduction in its financial year 2024 (FY24), FY25 and FY26 core net profit estimates by 1.9%, 3.6% and 3.1%, respectively
It reduced its FY24-FY26 revenue estimates by 1.2% for Heineken to reflect the recent declining revenue trend witnessed for 4Q23.
It maintains its 100% dividend payout ratio for Heineken over FY24-FY26, but noted that there is room for dividends to be ratcheted up.
This is given its lower net debt-to-earnings before interest tax depreciation and amortisation levels vis-a-vis levels pre-Covid 19.
The research house has an “add’’ call on Heineken with a revised target price of RM28.85 a share.
UOB Kay Hian raised its 2024-2025 earnings for the brewer by 0.4%-1.5%.
It raised its target price to RM28.50 a share and maintained its “buy’’ call on the stock.
CGSI Research foresees the return of revenue growth as the key catalyst for Heineken’s shares.
In its view, Heineken’s 5.9% FY24 dividend yield provides downside support.
The key risks cited for its stock call include a stronger pivot away from beer by younger drinkers, weaker economic activity and elevated cost of living pressures weighing on beer consumption.
It also includes elevated marketing activity crimping margins without stimulating demand.
