Brewers likely to post another record sales performance in 2020

TheEdge Tue, Nov 12, 2019 10:58am - 4 years View Original


Consumer sector
(Brewery subsector)

Maintain neutral: We expect brewers to sustain robust earnings growth heading into 2020, underpinned by: i) an absence of excise-duty hikes; ii) a potential sales boost from Visit Malaysia Year 2020 (VMY2020) and the declining presence of contraband beer; and iii) a temperate cost environment. The medium-term outlook for both Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd remains positive, with growth catalysts for the former arising from premiumisation, while the latter stands to benefit from its e-commerce foray and new product launches. We raise our discounted cash flow-derived target price (TP) for both stocks, in view of an increased investor appetite for safe-haven stocks with sustainable yields, ascribing a narrower valuation gap in relation to the local consumer sector and regional peers. We maintain our “hold” call on Carlsberg due to its recent share price outperformance and reiterate our “buy” call on Heineken.

Both Carlsberg and Heineken have demonstrated commendable earnings delivery for recent quarters, with double-digit top-line growth registered since the fourth quarter of  2018 in spite of three successive rounds of price hikes from April 2018 to April 2019. While this was partially attributable to the clampdown on contraband alcohol (said to command 20%-30% of the malt liquor market), the sustainable growth drivers are nonetheless tied to an expanding market size and favourable consumption patterns, in our view.

We believe the brewers are set to register another record sales performance in 2020, with volume sales supported by healthy consumption trends under a captive duopoly malt liquor market. The higher tourist arrivals expected from the VMY2020 campaign and the ongoing clampdown on contraband alcohol could potentially boost demand growth as well. We expect total earnings to register a growth of 10% in 2020, with margins projected to hold up as production input costs are likely to ease.

While we maintain our “neutral” call on the consumer sector, we are more bullish on the brewers due to their favourable earnings outlook (three-year earnings compound annual growth rate of 10%) with sustainable yields. Given the increased market appetite for defensive yield exposure and the valuation discount relative to peers in both the local consumer sector and regional brewery space, we lift our TPs for both Carlsberg (from RM24.60 to RM28.50) and Heineken (from RM25 to RM29). However, we maintain our earnings estimates. Heineken is our preferred pick as the sector laggard, with its implied upside of 15% and higher 2019-2021 earnings yields of 4%-5%. — Affin Hwang Capital, Nov 11

The content is a snapshot from Publisher. Refer to the original content for accurate info. Contact us for any changes.






Related Stocks

AFFIN 2.460
CARLSBG 18.380
HEIM 23.220

Comments

Login to comment.