KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) has maintained its "overweight" stance on Malaysian brewers, citing their attractive risk-reward profile despite recent share price weakness following the announcement of higher excise duties.
HLIB noted that shares of Carlsberg Brewery Malaysia Bhd and Heineken Bhd fell 19 per cent and 4.8 per cent, respectively, in 2025, underperforming the broader Kuala Lumpur Consumer Products and Services Index, which declined 2.3 per cent.
"Early-year gains were quickly unwound as regulatory concerns resurfaced across the broader sin sector.
"The ban on cigarette displays and renewed discussion around higher tobacco duties triggered a sector-wide risk-off, which was subsequently reinforced by the 13th Malaysia Plan highlighting the potential expansion of a "pro-health" tax to include alcoholic beverages.
"The final leg of the de-rating followed with the announcement of a 10 per cent excise duty hike in Budget 2026. This sell-off occurred despite brewers remaining on track to deliver earnings broadly in line with (if not exceeding) last year's record levels, pointing to regulatory risk, rather than fundamentals, as the dominant overhang.
"With the excise increase now implemented and historical precedents pointing to long timing gaps between hikes, we expect this regulatory overhang to gradually fade and resuscitate sector sentiment in 2026," HLIB said in a note.
Moving into 2026, HLIB said investor focus will now shift to the post-excise volume trajectory following brewers' low- to mid-single-digit average selling price increases in November.
"That said, we do not expect a sharp decline in sales volumes. 2026 is an event-heavy year, which should help support consumption, underpinned by more favourable Chinese New Year timing versus last year's early-celebration distortion, incremental tourist-led demand under Visit Malaysia Year 2026 and FIFA World Cup-related uplift," it added.
While the sales volume outlook appears muted in 2026, HLIB said brewers' earnings will be supported by the steady margin outlook.
Earnings will also be supported by margin tailwinds from a stronger ringgit and stable raw material costs.
The firm kept its "Overweight" call on the sector with Carlsberg as its top pick (Buy, target price: RM24).
"Between the two, we see Carlsberg as the better pick, supported by its diversified earnings base with around 30 per cent of sales derived from Singapore. Heineken will be particularly vulnerable to the upcoming excise duty adjustment and post-price-hike consumption slowdown, HLIB said.