Malaysia: Both Malaysia’s leading brewers seeing early signs of earnings stagnation
The skies are looking rather overcast over Malaysia’s brewers, Carlsberg Brewery Malaysia Bhd and Heineken Malaysia Bhd, as consumers are buying fewer rounds of drinks amid rising living costs, higher input costs and ongoing subsidy reforms. Once considered market darlings for their resilience and dividends, both companies are seeing early signs of earnings stagnation as tighter discretionary spending takes a toll, The Edge Malaysia reported on July 28.
A lift from tourism due to Malaysia’s role as Asean 2025 chair and the upcoming Visit Malaysia Year 2026 is hoped to offer some support, but with foreign visitors historically contributing less than 10% of total beer sales, the potential upside remains limited.
For now, the brewery sector’s appeal lies largely with long-term income investors drawn to its stable 4% to 5% dividend yields, as recovery is likely to be slow, say market experts.
For the first quarter ended March 31, 2025 (1QFY2025), Heineken Malaysia registered a net profit of RM122.15 million, largely unchanged from RM122.48 million during the same period last year, while revenue fell 3.24% to RM763.63 million, from RM789.17 million. Earnings were supported by lower interest expenses, effective cost control and improved financial efficiency, following the Chinese New Year festivities.
Carlsberg posted a net profit of RM94.52 million for the same quarter, up from RM87.93 million a year earlier, but quarterly revenue declined 8.67% year on year (y-o-y) to RM662.81 million, from RM725.76 million. This drop was attributed to lower sales volume, which was affected by the earlier timing of Chinese New Year in 2025.
The high base effect from the previous year, when trade purchases were brought forward in anticipation of a price adjustment, also contributed to the y-o-y drop.
For Heineken, net profit for FY2024 rose 20.7% y-o-y to RM466.7 million, supported by a 5% increase in revenue to RM2.78 billion, from RM2.6 billion. In comparison, Carlsberg posted a marginal 1.7% increase in net profit to RM340.7 million, from RM334.9 million, on the back of a 5.1% rise in revenue to RM2.38 billion.
Tradeview Capital Sdn Bhd chief investment officer Nixon Wong tells The Edge: “Although brewery products are seen as resilient, volume growth has been muted in the domestic market, [which] currently has not reverted to pre-Covid-19 levels. Sales have plateaued or normalised, and the growth momentum seen post-pandemic has tapered.
“Input costs such as packaging materials and logistics have increased, especially with global inflationary pressures, and upcoming price hikes are unlikely to be passed on fully to consumers without hurting volume — leading to margin compression.
“Brewery stocks have historically traded at premium valuations, owing to their defensive nature and strong dividend yields. Recent earnings have been flat or declining, however, making investors question whether the premium is still justified.”
Still, some quarters in the investor community remain positive, as the companies’ fundamentals are still seen to be compelling to value investors.
“A lower interest rate environment will boost buying interest in Carlsberg and Heineken, with their attractive dividend yields of 5.5% and 6.5%,” says private investor Ian Yoong Kah Yin.
During the last five financial years, Carlsberg paid out dividends per share of 40 sen in FY2020 to RM1 in FY2024, and a first interim DPS of 23 sen for 1QFY2025. Similarly, Heineken dished out a handsome annual DPS of 51 sen in FY2020 and up to RM1.55 in FY2024. There was no dividend payout for 1QFY2025.
Shares in Heineken Malaysia have fallen from a year-to-date peak of RM28.40 on May 16 to RM23.58 last Wednesday (July 23), while Carlsberg dropped sharply from RM20.76 at the start of the year to RM18.30 last Wednesday.
The next day, however, both counters rebounded, buoyed by Prime Minister Datuk Seri Anwar Ibrahim’s special address on Wednesday unveiling a new round of fiscal support measures that increased the total 2025 allocation for the broader Sumbangan Tunai Rahmah programme by RM2 billion, to RM15 billion, and doubling the Rahmah Madani Sales programme budget to RM600 million, from RM300 million, for 2025.
In a July 24 note, CIMB Securities says it maintains a “neutral” call on the consumer segment, which is “currently trading at 27.2 times one-year forward price earnings ratio (PER), slightly over one standard deviation below its five-year mean of 29.1 times”. It views the latest stimulus as incrementally positive for the nation and that certain retailers could see improved footfall and higher spending per customer as disposable incomes increase, amplified by the recent 25 basis point overnight policy rate cut to 2.75% effective from July 9.
“The big positives for both companies are the reasonably attractive fundamentals,” it says.
According to Bloomberg, Carlsberg and Heineken are trading at 16.2 times trailing 12 months PER and 15.2 times PER respectively. Dividend yields are 5.5% and 6.5% respectively. Return on equity is spectacular at 134% and 110% respectively. “Low single-digit growth in unit sales notwithstanding, both brewers, in a duopolistic environment, are close to being money-printing machines (cash generators) after the recent sharp fall in their share prices,” says Yoong.
An analyst, who asked not to be named, concurs, saying that despite lingering concerns over weaker sales volumes amid cautious spending, this is an opportune time for potential investors to start monitoring both counters.
Maybank Investment Bank Research, in a note dated July 7, says Heineken will raise prices across most of its product portfolio between 2% and 8%, effective from Aug 1 for on-trade channels and Sept 1 for off-trade channels. The group last implemented a price hike of 5% to 8% on April 1 last year, citing ongoing pressure from input costs.
While some business analysts believe a low single-digit price increase will have minimal impact on demand, Maybank IB Research cautions that Carlsberg may follow suit with a similar hike, given the local beer market’s duopolistic structure.
“Historically, industry price adjustments have led to weaker sales volume in the following two to three months,” the research firm points out.
Others are less concerned about the price hike and believe that, given Carlsberg and Heineken’s position as price makers, demand will hold up even in the current economic environment.
Revenir
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