KUALA LUMPUR (Sept 19): CGS-CIMB Research said today Carlsberg Brewery Malaysia Bhd is its top pick in the brewery sector due to the company's higher dividend yields and cheaper valuations.

In a note today, CGS-CIMB analyst Walter Aw said CGS-CIMB has an add call for Carlsberg shares with a target price (TP) of RM25.70. He said the research house retained its overweight call on the brewery sector, which includes Heineken Malaysia Bhd.

CGS-CIMB has a RM24.80 TP for Heineken Malaysia shares with an add call for the stock, according to Aw. At Bursa Malaysia today, Heineken Malaysia's share price was unchanged at RM24.10 at 11:22am.

Carlsberg Brewery shares have not been traded so far today, Bursa's website shows.

Aw said: "We believe that the inelastic demand for beers should support the sector's earnings and valuations, with attractive FY19-21F dividend yields of 3.9-4.7% offering investors a safe haven in a volatile market. While we have add calls on both stocks, our top pick is Carlsberg Brewery for its higher dividend yields and cheaper valuations. Downside risks: weaker MLM (malt liquor market) volumes and an excise duty hike in Budget 2020."

"In our view, an excise duty hike on beers is unlikely in the run-up to Budget 2020. Our assessment is premised on: i) plans to attract more tourists with the upcoming Visit Malaysia 2020 campaign, ii) weak consumer sentiment, and iii) potential loss of tax revenue due to lower sales volume if duties were hiked. To recap, the most recent increase in excise duties on beer was in March 2016 (by 10-11%), the first hike in a decade," he said.