Malaysia: Carlsberg Brewery Malaysia may see softer demand in Q3 this year

Carlsberg Brewery Malaysia Bhd (CBM) may experience softer demand for its products in the third quarter (Q3) of this year, given the ongoing cost inflationary environment, before seeing an uptick in the fourth quarter (Q4) alongside year-end festivities, The New Straits Times reported on June 17.

Maybank Investment Bank Bhd (Maybank IB) said that due to escalating input costs, CBM has announced that it will be raising product prices for selected stock keeping units (SKU) and brands, effective 1 July 2022.

"We are unsure of the quantum of increase at this juncture.

"The last product price increase, which was 6-7 per cent, was made six months ago," the bank-backed research firm said in a recent note.

Maybank IB noted that CBM declined to comment on either the quantum of increase or the products that will be affected.

"That said, due to the cost-push nature of this round of price hikes, we suspect that both on and off-trade products will be affected.

"Cognisant of the potential negative impact to demand, CBM may offer added discounts through sales incentives across its sales channels to ease consumers' transition to a higher price landscape," Maybank IB said.

The research firm noted that historically, weak demand could persist for 2-3 months following product price hikes.

On raw materials, Maybank IB noted that CBM had not experienced any shortages as it has lengthened its stock holding to more than six months to avoid disruptions to its production chain.

The company usually hedges a significant portion of its requirement at the beginning of every year.

The research firm noted that its plant upgrade to replace two bottling lines with one higher capacity line is in full swing and is targeted to be completed by early Q4 of 2022.

On growth, Maybank IB said CBM's strong sales volumes in the first quarter (Q1) of 2022 were driven mainly by the Chinese New Year, however, overall volumes have not recovered to pre-pandemic levels yet.

Although sales in tourist areas such as Langkawi have improved, Chinese tourists have not returned in full force yet, hence CBM will focus on growing domestic sales for now, particularly in its on-trade channels.

"We understand that Q1 2022 premium volume growth such as Kronenbourg 1664, Blanc, Somersby Cider, Connor's in a can outpaced its mainstream volumes, showcasing that premiumisation trends are still intact.

"We make no changes to our earnings estimates, maintain a Buy call with a target price of RM27.80," Maybank IB said.

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