Malaysia: Price hike by Carlsberg and Heineken likely to result in alleviated operational cost pressure, analysts say

The hike in prices by local breweries Heineken Malaysia Bhd and Carlsberg Brewery Malaysia Bhd will likely result in alleviated operational cost pressure, say analysts, The Star reported on April 1.

“Based on our channel checks, Heineken and Carlsberg Malaysia will be raising product prices by 5% to 8% effective April 1, for on-trade channels and May 1, for certain aluminium can products in off-trade channels.

“Both brewers cited growing internal cost pressure from elevated input costs and weakening ringgit to dollar foreign exchange as reasons for the price increase,” said Maybank Investment Bank (Maybank IB) Research, in a report.

The research house said Heineken and Carlsberg Malaysia had not raised product prices since the second half of 2022.

With ongoing inflationary cost pressures, the research house said both companies have experienced negative volume growth in the financial year 2023 (FY23).

It said Heineken saw a decline of 8%, while Carlsberg Malaysia registered a dip of more than 10% in FY23.

Higher prices will be a reprieve from prolonged pressure on operating margins for both breweries, but this may come at the expense of sales volume growth in the medium term.

“This is especially when consumers are still reeling from lower disposable income and potentially negative effects on consumer spending if subsidy roll-backs are implemented in the form of diesel and RON95 petrol, eggs and sugar this year.

“That said, potential improvement in inbound tourism could partially buffer any weakness in sales volume,” said Maybank IB.

Meanwhile, Carlsberg Malaysia said it is expecting a cautious year ahead, on the back of continued inflationary pressures, high interest rates impacting consumer spending and currency fluctuations.

Despite the headwinds, managing director Stefano Clini said the group remains cautiously optimistic and will focus on expanding its portfolio brand offerings,as well as continued balanced growth with prudent revenue optimisation and cost-efficiency measures.

Clini said the group’s Malaysian operations will commence local manufacturing of Sapporo quart and pint bottles, which will be available by the second half of 2024.

“In addition, we are also exploring other partnership opportunities with Sapporo, in addition to our existing manufacturing and distribution rights in Malaysia and Singapore,” he said in the company’s annual report.

Clini added that the company will be advancing the next phases of its brewery transformation to future-proof product and packaging innovations, with resources set aside to invest in a brand-new canning line and upgrade of filtration capabilities.“In addition, we will continue to implement relevant and meaningful technology upgrades to be ahead in terms of digital adoption.

For its fourth quarter ended Dec 31, 2023 (4Q23), Carlsberg Malaysia’s net profit rose to RM84.02mil from RM60.12mil in the previous corresponding period, while revenue dipped to RM580.53mil from RM612.75mil a year earlier.

For FY23, net profit improved to RM333.24mil from RM317.05mil, while revenue stood at RM2.26bil compared with RM2.41bil previously.

UOB Kay Hian (UOBKH) in a recent report said Carlsberg Malaysia’s financial results were within expectations.

It also said the company is operationally stable but could face rising marketing costs.“While raw material costs have largely stabilised, the increase in marketing spend is likely to continue throughout 2024.”

Despite the overall decrease in sales volume in 2023, UOBKH observed that Carlsberg Malaysia increased its overall commercial spend in an attempt to grow market share.

“We expect the heightened marketing spend to persist into 2024 despite the overall soft consumer sentiment, doubly so given the necessity to build the new Sapporo brand.”

Based on the company’s guidance, UOBKH said the initial response to the Sapporo brand has been positive.

“So far, almost all of Carlsberg Malaysia’s existing on-trade channels have converted to Sapporo and performance in off-trade channels has also been encouraging.”

The research house also said the recent Chinese New Year (CNY) celebrations should lift earnings.

“Buying ahead of CNY should result in a seasonally strong 1Q24 for Carlsberg. The early CNY in 2023 also resulted in more pre-sales being captured in 4Q23, which could provide a weaker base for year-on-year comparisons.

“However, organic growth in 2024 may be muted, given the persistent headwinds clouding consumer sentiment. As such, we continue to expect relatively flat volume growth (0.5% year-on-year) in 2024.”

Meanwhile, during a press conference on its FY23 performance in February, Heineken managing director Roland Bala acknowledged that market sentiment was adversely affected in FY23, from a record-breaking year in FY22.

He said the brewery will plan prudently going forward, keeping in mind all the macro headwinds.

For 4Q23, Heineken saw its revenue decrease to RM728.62mil compared with RM791.69mil in 4Q22. Net profit for the quarter under review dropped to RM99.07mil from the RM104.63mil in 4Q23.For FY23, the brewery saw its revenue dip to RM2.64bil from RM2.86bil recorded in its previous financial year, due to weak consumer sentiment attributed to growing macroeconomic concerns in 2023.

Net profit declined to RM386.8mil from RM412.82mil in FY22.

Commenting on the group’s results, RHB Investment Bank said Heineken’s results were below expectation, but in line with consensus.“Management has observed some improvement in consumer sentiment since 4Q23 and this has sustained into FY24. This is in view of the encouraging Lunar New Year sales momentum.

“Meanwhile, the premiumisation strategy has continued to gain traction in view of the steady performance of the premium brands. On top of that, rising tourist arrivals should lend further support to consumption growth going forward.”

On the flipside, RHB said management regards the geopolitical tensions as a major risk, as further elevation may lead to supply chain disruption and material hikes in input costs.

01 April, 2024