Brewers lose early gains as excise hike and health agenda weigh on sentiment

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BREWER’S share prices rallied in early first half of 2025 (1H25), but gains were erased in 2H25 as the April 1 ban on cigarette displays and talk of higher tobacco duties sparked broader “sin sector” risk-off sentiment, weighing on the brewers. 

This was compounded by the government’s broader health agenda, with the 13MP highlighting the expansion of a “pro-health” tax to cover both alcoholic and cigarette products. 

In line with this policy direction, the recently tabled Budget 2026 proposed a 10% hike in excise duty on alcoholic beverages, marking the first upward revision since 2016, when duties were rebased to RM165 per litre of alcohol content. 

Under the proposal, the effective excise duty rate for beer will rise to RM192.5 per litre (from RM175). Given that excise duties account for 58-60% of brewers’ cost of goods sold, this translates into a 5.8-6.0% increase in their overall cost base.

“In our view, the excise duty hike will likely be fully passed through to consumers,” said Hong Leong Investment Bank (HLIB).

While brewers have the option of lowering alcohol content to mitigate tax increases, our discussions with brewery management suggest this is not a viable strategy due to the risk of compromising taste and consumer acceptance. 

“Heading into financial year 2026 (FY2), we identify two key catalysts that could help cushion potential volume losses, the 2026 Visit Malaysia Year and the FIFA World Cup 2026,” said HLIB.

Malaysia’s target to attract 43 mil tourists in 2025 and 47 mil in 2026 is poised to lift beer sales.  Meanwhile, the FIFA World Cup has typically been a strong catalyst for beer demand, with past tournaments (FIFA14, FIFA18, FIFA24) delivering more than 10% year-on-year (YoY) revenue growth in the corresponding quarter. 

Notably, these event-related spikes occurred despite challenges such as the 2014 excise duty hike, the 2018 US-China trade war, and the 2024 high inflation slowdown. 

“As such, we are optimistic that history will repeat again in quarter three 2026,” said HLIB.

HLIB sees Carlsberg as the better pick, supported by its diversified earnings base with around 30% of sales derived from Singapore. Heineken, while appealing for its more than 6% dividend yield, could be weighed down by ongoing digital infrastructure investments.

With 100% of its sales exposed to Malaysia, Heineken is also more vulnerable to the upcoming excise duty adjustment and post-price-hike consumption slowdown.

“Maintain Overweight, as we continue to favour brewer’s risk-reward profile, particularly after the recent share price weakness following the excise duty hike announcement,” said HLIB.

With both Carlsberg and Heineken now trading at undemanding valuation, back to levels last seen during Covid-19, HLIB believes much of the regulatory risk is already reflected, while sentiment could gradually improve given that past two excise duty hikes were spaced more than five years apart. —Oct 29, 2025

Main image: Malay Mail

 

The post Brewers lose early gains as excise hike and health agenda weigh on sentiment first appeared on Focus Malaysia.

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