Recovery in tourist arrivals a boon for Carlsberg

KUALA LUMPUR: The return of foreign tourists are anticipated to be a strong catalyst for Carlberg Brewery Malaysia Bhd’s beer sales.

Hong Leong Investment Bank (HLIB) Research said in a post-results note the projection is underpinned by the Malaysia and Singapore authorities’ prediction of a 60% and 90-121% year-on-year surge in 2023 foreign tourist arrivals respectively.

“Although Carlsberg has encountered challenges due to weak consumer sentiment impacting sales, we anticipate that the resilience of beer sales will remain, bolstered by the ongoing recovery in tourist arrivals and 2H seasonal trends,” it said.

Meanwhile, HLIB also sees the potential for brewers’ margins to expand if the trend of dimishing raw material prices persists.

It noted that brewers previously adjusted beer prices in response to cost pressures during the 2021-2022 period.

“Looking ahead, we hold the view that lower tin and barley prices will translate to a more favourable margin outlook for brewers upon the renewal of fixed-price contracts,” said HLIB.

The research firm suggested there could also be more upside potential in Carlsberg following the recent fall in its share price.

HLIB said the market has appeared to undervalue Carlsberg’s Singapore operations, which brings several advantages such as sales diversification, a natural hedge against exchange rate fluctuations, reduced regulatory risk and a brighter sales outlook fuelled by robust purchasing power.

“Additionally, Carlsberg’s operation in Singapore provides enhanced exposure to the reopening of the tourism sector,” it said.

HLIB maintained its “buy” call on Carlsberg with an unchanged target price of RM30.77.

In the first half of 2023, Carlsberg reported a core net profit of RM175.6mil, which was within HLIB’s and consensus projections at 51% and 50% of full-year estimates.

“Despite experiencing reduced sales due to weakened consumer sentiment caused by inflationary pressures, the company’s bottom line performance remained commendable,” said the research firm.