The state government of Kedah will be introducing curbs to limit the sale of alcoholic beverages in the state, especially the rural areas where demand for alcohol is lower. We understand that the state executive council has also discussed about the alcohol sale in Langkawi and other unlicensed stores within the state. The restrictions are expected to have a more pronounced impact on the brewers, should the curb be expanded to cover Langkawi, given the higher alcohol demand and consumption in the duty-free island. We are keeping our forecasts unchanged for now as we await more clarity on the measures that will be implemented by the Kedah state government. Reiterate NEUTRAL on the brewers.

NEWSBREAK

Kedah Menteri Besar, Muhammad Sanusi Md Nor said that the state government will be introducing curbs to limit the sales of alcoholic beverages in the state, especially in the rural areas.

HLIB’s VIEW

The restriction on alcohol sale in Kedah would likely cast the brewers in an unfavourable light, although the restrictions will mostly focus on the rural areas where demand for such beverages are lower. Non-Muslim consumers are not expected to be affected by the restrictions. We understand that the state executive council has also discussed regarding the alcohol sale at duty-free stores in Langkawi and at unlicensed stores in the state. We expect the curb to have a much larger impact on the brewers, should the restrictions be expanded to cover Langkawi as well. This is because the alcohol consumption and demand in Langkawi are believed to be much higher than the rural areas of Kedah, given the former’s (i) duty-free status and alcohol is significantly cheaper; as well as (ii) higher number of tourist arrival.

Forecast. We make no changes to our forecasts at this juncture given the lack of clarity on the measures that will be implemented to limit the sale of alcohol in Kedah.

Maintain NEUTRAL. Our recommendations and TPs on Carlsberg (HOLD, TP: RM20.40) and Heineken (HOLD, TP: RM22.50) remain unchanged. Maintain NEUTRAL on the Brewers.

Source: Hong Leong Investment Bank Research - 15 Nov 2021