Brewers poised to profit from upcoming FIFA World Cup

PETALING JAYA: Beer demand and sales are anticipated to stay strong in the second half of the year underpinned by pent-up demand, return of foreign tourists and the FIFA World Cup in Qatar in the November-december period.

The upcoming 2022 FIFA World Cup is scheduled to take place from Nov 21 to Dec 18 and would be another strong catalyst to boost beer sales as supporters flock to neighbouring pubs and coffee shops to watch the matches, thus drive up on-trade sales.

Hong Leong Investment Bank (HLIB) Research said despite the rise in beer price, it does not expects a significant slowdown in beer demand would happen, considering beer is still the cheapest alcoholic drink in the market with relatively inelastic demand.

It noted any demand slowdown in the second half would be offset by two primary catalysts – the return of foreign tourists and the FIFA World Cup.

Since August, Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd’s beer has been priced higher in response to the rising input cost (barley and aluminum).

Despite Malaysia already having the second highest alcohol excise duty in the world, risk of an excise duty hike for alcoholic drinks in the upcoming Budget 2023 can’t be discounted, HLIB Research stated considering the last excise duty hike was back in 2016 and the government’s given tight financial position now.

“History suggests higher excise duty has a rather short-lived financial impact on brewers. Taking the 2016 excise duty hike as a reference, the upward price adjustment in beer prices in response to the higher excise duties has caused brewers to record relatively lackluster earnings.

“Nevertheless, beer sales gradually recovered after consumers adapted to the new pricing after two quarters. Considering that brewers already raised their prices in response to higher input costs, we think brewers might absorb a certain portion of the excise duty in the near term and pass it to the consumer when sentiment recovers,” the research house added.

HLIB Research maintained its “overweight” stance on the sector adding it liked Carlsberg’s relatively diversified sales exposure (about 60% Malaysia, 30% Singapore), which is partially insulated from the regulatory risk (potential excise duty hike in Malaysia). It also liked Heneken, owing to its strong brand equity and leadership position.

Brewers ended their first half year performances with a bang, HLIB Research noted, with Carlsberg and Heineken’s first half results exceeding HLIB Research and consensus expectations of full-year forecasts.

“The positive surprises were mainly due to stronger-than-expected beer sales coupled with margin expansion amid better product mix (premium brands gaining traction).

“We note that brewers’ first half results have surpassed the pre-pandemic level versus the first half in 2019,” it added.