Malaysia: Heineken expected to focus on growing its premium brands
Heineken Malaysia Bhds sales grew of 14%, after removing the sales and service tax impact, in the first half of financial year 2019 (1HFY19) due to a robust performance in the first quarter (1Q) and a growth in core brands in 2Q, The Edge Markets MY reported on October 15, citing Hong Leong Investment Bank Research.
Finance Minister Lim Guan Eng reaffirmed the governments stance on cracking down on the illicit alcohol trade in lieu of increasing Malaysias alcohol excise duty structure. Further, take note in the recent Budget 2020 announcement, the government allocated RM235 million to purchase an additional 20 cargo scanners to clamp down on illegal import activities. Currently, the counterfeit alcohol market share is believed to be 25% in Peninsular Malaysia and 80% in Sabah and Sarawak.
Hong Leong Investment Bank analysts expect Heineken to focus on growing its premium brands Strongbow, Apple Fox and Heineken 0.0 which should lead to better margins due to higher shelf prices despite a similar production cost and a lower alcohol content the Strongbow and Apple Fox cider contain 4.5% alcohol by volume (ABV) and Heineken 0.0, 0% ABV. Take note that increased volumes of Heinekens lower ABV product lines result in a lower excise cost incurred to Heineken, resulting in better margins.
The analysts are particularly optimistic about Heinekens launch of the Heineken 0.0. They expect Heineken 0.0 to tap into a global trend of moderate alcohol consumption and healthier consumption patterns. Take note that Heineken 0.0 has half the calories of a regular Heineken beer at just 21 calories per 100ml. To date, Heineken 0.0 is available in over 50 countries, including Singapore and Thailand.
Heinekens online delivery venture with the e-commerce platform Drinkies is set up to deliver Heineken products at a delivery fee of just RM8, to anywhere in the Klang Valley and Penang within 60 minutes. Hong Leong Investment Bank analysts expect the venture to incur a marketing investment yet add significant volumes to Heinekens already leading market share position of an estimated 60% to 65% in the Malaysian market.
After accounting for returning legal volumes and better margins from the growth of premium brands, the Banks FY20 and FY21 earnings forecasts for Heineken Malaysia rose slightly by 3.4% and 3.8% respectively.
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