KUALA LUMPUR (Oct 11): CGS-CIMB Research has maintained its “overweight” stance on brewers and upgraded its “add” call (from “hold”) on Heineken Malaysia Bhd, while reiterating its “add” call for Carlsberg Brewery Malaysia Bhd.

The research house also raised the target price (TP) for Heineken to RM29.75 (from RM27.40) and Carlsberg to RM26.80 (from RM24.40), according to its note on Wednesday.

CGS-CIMB said that investors are eyeing the potential opportunities in the shares of brewery stocks in the fourth quarter (4Q) of this year. 

“Our analysis of the monthly share price performances of Carlsberg and Heineken suggest that investors seek entry points into these shares in 4Q [of 2033],” it said.

According to CGS-CIMB, Heineken showed an average 13.1% return over the October to February period between 2017 and 2023, while Carlsberg has delivered an average 15.2% return between October to April since 2017.

CGS-CIMB viewed that the strong performance in the later part of the year is underpinned by the improved demand around the festive seasons in 4Q and 1Q and some elements of stocking up ahead of the government budget announcement.

Meanwhile, the poorer performance during the mid-year period is due to the destocking of earlier inventory build-up, lack of major festivities to fuel beer demand and the typical fear of excise duty increases heading into the national budget announcements.

“2023 was also hit by the state elections in July, which may have prompted some selling of brewers shares on the perception of a changing political landscape,” it noted.

The research house also does not expect any hikes in excise duty for beer in the upcoming budget slated on Friday (Oct 13).

“In addition to already high levels of excise duties in Malaysia — the second highest globally according to the Confederation of Malaysian Brewers Bhd (CMBB) — a further increase in duties may have a negative impact on tax revenues as it could spur illicit activities such as smuggling,” it said.

Notably, both Heineken and Carlsberg’s shares were up three months after hikes in duties tax were announced previously.

“In 2016, it took between four to six months for the market to factor in the fact that beer consumption is largely inelastic and for share prices to post positive returns,” it added.

In the meantime, CGS-CIMB’s downside risks for the stocks are excessive excise duty hikes and lack of added taxes, while measures to lift consumption in Budget 2024 would be near-term catalysts.

At 9.42am, shares in Heineken were unchanged at RM24.76, valuing the group at RM7.48 billion, while Carlsberg were up six sen or 0.31% to RM19.66, with a market capitalisation of RM6.01 billion.