CEO Morning Brief

Mixed Views on Brewers’ Share Price Weakness

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Publish date: Thu, 30 Nov 2023, 08:45 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (Nov 29): Analysts are mixed on the buying opportunity of brewery stocks, which have fallen by more than a tenth this year on depressed consumer sentiment, with the less bullish not seeing any catalyst ahead, while the more positive believe it’s a good time to accumulate.

Share prices of Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd are now trading at their lowest level of the year.

At RM19.26, Carlsberg is hovering at a near three year low, after falling on Wednesday as much as 12 sen or 0.62%, which values the company at RM5.89 billion.

Heineken was down 36 sen or 1.58% to RM22.40, having declined as much as 70 sen or 3.07% to RM22.1 — lowest since November 2022 — which translates into a market capitalisation of RM6.78 billion.

Year to date, Carlsberg has lost 16% and Heineken 12%.

Rakuten Trade Sdn Bhd equity research vice-president Thong Pak Leng is of the view that investors should stay away from Carlsberg and Heineken, given the lack of catalysts, which is expected to delay share price recovery.

“Both stocks have broken many support levels; not a time to buy,” Thong told The Edge, placing the latest support level for Carlsberg at RM18, and RM21.80 for Heineken.

“If these support levels are broken, further downside is expected,” he projected. “Investors are advised to wait for a rebound before they start to relook these stocks, but it may take time,” he added.

Malacca Securities head of research Loui Low expects downside to persist due to weak consumer sentiments owing to inflation pressures. He observed that consumers are tightening their belts by cutting out non-essential spending, noting that inflation is also driving up business costs.

“The upside for the stocks depends on visitors from China and India and upcoming festival seasons such as the Chinese New Year to drive their sales figures. Until then, no recovery in sight for their share price,” he said.

Starting Dec 1, 2023, citizens of China and India can enjoy visa-free stays of up to 30 days in Malaysia.

TA Securities analyst Raymond Ng Ing Yeow has “buy” calls on both stocks, as the analyst believes current share price weakness presents a buying opportunity.

From technical perspectives, Heineken and Carlsberg have retraced back to a 52-week low, and a technical rebound could be on the horizon since the 52-week low usually forms a supporting line.

“Apart from that, fundamental-wise, I think their share price now presents a timely buying opportunity, as the downside is likely to be phased out soon. Also, both of the companies offer a lucrative two-year-forward dividend yield range of circa 5% and 6%, which I think is suitable for those low-risk-tolerance investors to diversify their portfolios.

Ng said that sentiments might be dampened for now, but believes the economy will recover in the longer term, especially in the first and second quarter next year, on the back of consumption during the upcoming festivals such as Chinese New Year, and that the breweries’ business is likely to remain intact or stay at current levels at the least.

Bloomberg data indicates that eight research houses have a “buy” call on Carlsberg, and three “hold” calls, with an average 12-month target price of RM24.40.

For Heineken, nine analysts have a “buy” call and two a “hold”, with an average 12-month target price of RM28.90.

In terms of financial performance, Carlsberg’s nine months ended Sept 30, 2023 (9MFY2023)’s net profit fell by 3% to RM249.22 million, from RM256.93 million previously, due to lower sales in Malaysia and Singapore.

Revenue for 9MFY2023 slipped by 6.63% to RM1.68 billion, compared with RM1.80 billion for 9MFY2022.

Carlsberg has to-date paid total dividends of 62 sen for FY2023. In FY2022, it paid out a total of 88 sen, which translated into a dividend yield of about 4.5%.

Heineken’s nine months ended Sept 30, 2023 (9MFY2023) was also down, as net profit decreased by 6.64% to RM287.73 million from RM308.19 million in 9MFY2022. Revenue shrank 7.48% to RM1.91 billion, from RM2.06 billion over the same period.

Heineken has paid 40 sen in dividends to-date for FY2023. It paid 138 sen in FY2022, which translated into a dividend yield of about 6%.

Read also:
Carlsberg posts lower 3Q net profit, sees RM30m hit from non-renewal of Asahi agreements
Weak consumer sentiment pulls Heineken Malaysia's 3Q net profit down

Source: TheEdge - 30 Nov 2023

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