Wednesday 22 May 2024
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KUALA LUMPUR (Jan 4): Hong Leong Investment Bank (HLIB) Research has maintained its “overweight” rating of the brewery sector, and said that although tourist arrivals in both Malaysia and Singapore had displayed commendable recovery trajectories, they are still below pre-pandemic levels, indicating room for further advancement — and the brewers offer good exposure to this angle.

In a sector update on Thursday, the research house said it foresees the upward trend in tourist numbers continuing into 2024, driven predominantly by an escalating influx of Chinese tourists, ultimately boosting beer consumption.

Moreover, it said the lower prices of tin and barley are poised to contribute to a more favourable margin outlook for brewers upon the renewal of fixed-price contracts.

“We maintain our 'overweight' call [on the sector], with Carlsberg Brewery Malaysia Bhd being our top pick,” it said.

HLIB said brewers responded to elevated raw material costs, including barley, aluminium and logistic, by increasing their beer average selling prices (ASPs) in 2021-2022.

It said as these costs are currently easing from their peak levels, an avenue for margin expansion emerges post expiration of prevailing fixed-price contracts, enabling brewers to capitalise on lower raw material prices.

Additionally, HLIB said the impact of the weakened ringgit on costs is expected to subside in 2024, especially considering the end of the US Federal Reserve’s rate upcycle. Our economics team is optimistic about a ringgit recovery in 2024, projecting an average US dollar-ringgit exchange rate of 4.44 (versus 2023: 4.54) to end the year at 4.30.

“With the anticipation of reduced cost pressures, we do not foresee a significant increase in beer ASPs that could potentially impact consumer demand.

“We have 'buy' ratings for both the brewers [listed on Bursa Malaysia], as we opine they offer exposure to the tourism recovery angle, which still has legs to go.

“Between the two — Carlsberg (target price: RM30.31) and Heineken Malaysia Bhd (RM29.94) — we favour the former for exposure,” it said.

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