KUALA LUMPUR (March 24): Although brewery counters Heineken Malaysia Bhd and Carlsberg Brewery (M) Bhd tend to stay safe in volatile markets, they are, however, most likely to be negatively affected by the government’s mandatory control order (MCO), said CGS-CIMB Research.

Carlsberg said yesterday that its operations will be temporarily halted during the 14-day MCO from March 18 to 31. Under the MCO, all government and private premises except those involved in essential services must be closed.

CGS-CIMB said this is negative as Carlsberg’s temporary ceasing of operations includes all manufacturing activities and any physical marketing activities.

“Hence, we expect Carlsberg’s earnings to be negatively affected on the back of lower production output and lower sales from fewer marketing activities,” it said in a note today.

With this announcement, CGS-CIMB said it is also expecting Heineken to follow suit and temporarily halt operations in this period.

The implementation of the MCO also means potentially lower on-trade sales for Heineken and Carlsberg at locations such as hotel restaurants, bars and pubs whose operations have also been temporarily closed.

CGS-CIMB estimates that on-trade sales currently make up approximately 50% to 55% of both Heineken and Carlsberg’s total sales.

“We also expect lower tourist arrivals as a result of Covid-19 and the cancellation of the Visit Malaysia 2020 campaign to adversely affect the consumption of beer in the country,” it said.

It added that as major sporting events, such as Euro 2020, have been cancelled or postponed due to the Covid-19 outbreak, this will also lead to lower multi-marketing level sales in supermarkets and other retailers.

CGS-CIMB cut its FY20 to FY22 earnings per share (EPS) forecasts by 4.9%-8.5% for Carlsberg. The research house also cut its FY20 to FY22 EPS for Heineken by 2.6%-3.8%.

The research house has upgraded Carlsberg to “add” albeit with a lower target price of RM28, and maintained its “add” call on Heineken, with a lower target price of RM26.70.

At the time of writing, both counters were amongst the top gainers on Bursa Malaysia, with Carlsberg gaining 88 sen or 4.46% to RM20.60, while Heineken rose 50 sen or 2.53% to RM20.26.

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