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Malaysia. CIMB Research retains Overweight on brewers

CIMB Equities Research is retaining its Overweight stance on the brewers as the recent increase in excise duty will not negatively impact the earnings of GAB and Carlsberg significantly.

Hence, it adjusted its earnings slightly by lowering malt liquor market (MLM) volume and imputing higher average selling prices to account for the changes in the duty structure as well as the removal of the ad valorem tax.

“We maintain Overweight on the sector while switching our sector’s top pick to Guinness Anchr Bhd (GAB) from Carlsberg given the higher potential upside,” it said on Thursday.

CIMB Research said the two brewers move to hike prices on average by 2%-5% as fair as they have been maintaining prices since 2015 despite the implementation of Goods and Services Tax (GST) which came into effect in April 2015, and other cost hikes.

Any downside to MLM volume is expected to be limited given the manageable quantum of increase and consumers switching to beer from other alcoholic drinks. The removal of the 15% ad valorem tax creates a level playing field for all, it said.

“Overall, we believe that MLM volumes are unlikely to be impacted significantly. The removal of the 15% ad valorem tax across all beer categories is also positive for brewers.

“Given that all types of beer with similar alcohol content will be subject to the same fixed rate based on the duty structure, this creates a fair competitive environment regardless of the brewer or brewing location,” it said.

11 Mar. 2016

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