Malaysia: Carlsberg Brewery Malaysia’s focus on premium brands paying off despite soft consumer market

Carlsberg Brewery Malaysia Bhd’s strategy of focusing on its premium brands is paying off even as the soft consumer market and inflationary pressures have kept sales volumes from normalising back above pre-Covid-19 pandemic levels, The Edge Malaysia reported on September 16.

In announcing its results for the first half of 2024 on Aug 19, the brewer of beer brands such as Carlsberg, 1664, Sapporo, Somersby Cider and Tuborg Strong said it would continue to focus on its “Accelerate SAIL” strategic priorities, including enhancing its premium portfolio, and catering to its consumers’ lifestyle and needs.

“We continue to drive premiumisation, aligned with our ‘Accelerate Premium’ priorities, through the successful launch of two premium lager brands — the Japanese Sapporo and French 1664 BRUT — in both Malaysia and Singapore. In addition, we have also unveiled Somersby limited-edition Pineapple & Lime cider variant in Malaysia in July as an added boost to our cider category,” said Carlsberg Malaysia managing director Stefano Clini.

Carlsberg Malaysia has seen earnings grow at a compound annual growth rate of 26.4% in the last three years (2020-2023). The brewer recorded strong performance for the financial year ended Dec 31, 2023 (FY2023), posting a net profit of RM327.3 million, up 3.2% from RM317 million in FY2022. It registered a net profit of RM201 million in FY2021, RM162.2 million in FY2020 and RM291 million in FY2019.

Still, Carlsberg Malaysia remains a healthy and profitable company, enabling it to sustain strong dividend payouts to its shareholders. It paid a dividend of 93 sen per share in FY2023, an increase from 88 sen per share in FY2022.

So far this year, it has declared 42 sen in dividends, which is lower than the 43 sen declared in 1HFY2023, on the back of a 3.4% year-on-year decline in net profit to RM167.3 million due to the recognition of a higher deferred tax expense for its 25%-owned associate Lion Brewery (Ceylon) plc.

Its adjusted weighted three-year return on equity was 23.5% during the review period, according to The Edge Billion Ringgit Club (BRC) awards methodology, having jumped to 22.9% in 2023 after slipping to 21.9% in 2022 from 27.1% in 2021.

For the fifth consecutive year, Carlsberg Malaysia took home The Edge BRC award for the Highest Return On Equity Over Three Years in the consumer products and services sector.

Over the past year, its stock has fallen 5% to close at RM19.30 on Aug 27, 2024, bringing its market capitalisation to RM5.9 billion. During the current awards evaluation period between end-March 2021 and end-March 2024, its share price went down from RM21.50 (adjusted) at end-March 2021 to RM19.80 a year later, but rebounded slightly to RM20.60 by March 2023. However, it had slipped back to RM18.50 by March 31 this year — the cut-off date for the 2024 BRC awards. As such, during the period in review between March 31, 2021, and March 31, 2024, its total shareholder returns of minus 4.8% do not look as impressive.

Over the near term, the group remains mindful of the uncertain global economic outlook, marked by ongoing inflationary pressures, high interest rates resulting in the increasingly cautious consumer spending and currency fluctuations. However, the timing of seasonal celebrations, including an earlier Chinese New Year, is expected to contribute to an increase in sales volume.

“We will continue to stay vigilant on cost management and cost optimisation opportunities in our supply chain, which will enable us to accelerate investments in our brands, ensuring sustained growth and delivering value for our shareholders,” Clini said.

In an Aug 20 report, Hong Leong Investment Bank Research says it expects Carlsberg Malaysia’s beer sales in FY2024 to be driven by the continued influx of foreign tourists to Malaysia and Singapore, and gradual improvements in labour conditions and income prospects within Malaysia.

“Our projections also incorporate the assumption that Sapporo will replace Asahi in the market (following the delisting of the Asahi brand), considering Asahi’s relatively low market share in Malaysia.

“We expect FY2024 to be a transitional year for Carlsberg Malaysia, projecting flat earnings growth as the higher advertising costs associated with the Sapporo brand are offset by a positive sales outlook,” the research firm said. It added that factors that could lead to better-than-expected results include the appreciation of the ringgit against the US dollar, which could ease Carlsberg Malaysia’s cost pressures, and Sapporo’s potential to gain more traction in the market.

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