Relaxed SOPs a boon for brewers
KUCHING: Brewers such as Carlsberg Brewery Malaysia Bhd (Carlsberg) and Heineken Malaysia Bhd (Heineken) are set to benefit from the new standard operating procedures (SOPs) effective April 1.
To facilitate with the nation’s transition towards an endemic phase, the Malaysian government has removed majority of the existing social restrictions which took effect April 1 onwards.
Some of the relaxed restrictions include the resumption of operations for bars and pubs; normalising of operating hours for eateries and pubs; the removal of 50 per cent capacity limit for indoor events; and the reopening of international borders.
“The resumption of business for bars and pubs is unlikely to translate to a huge boost in sales, as we expect much of them to have already converted to an alternative license during the pandemic to ensure survival,” commented analysts with Hong Leong Investment Bank Bhd (HLIB Research) in a sector review.
“That said, we think that the relaxed SOPs are beneficial to the brewers due to the expected increase in alcohol consumption. This is on the back of longer operating hours for eateries and entertainment outlets; more mass gatherings, events and weddings; larger turnout for events; as well as higher tourist arrivals.”
This led HLIB Research to project sales volume for Carlsberg to recover by 17 and eight per cent in FY22 and FY23 forecasts respectively, and a similar recovery in sales volume for Heineken as well.
“In our opinion, the overall consumption of beer will only return to pre-Covid levels in FY23, given the prolonged closure of nightclubs as well as permanent closure of on-trade channels during the pandemic,” it added.
Meanwhile, the research house noted that brewers have seen their production costs creeping up in 2021, with average global prices for barley and aluminium increasing by 31 and 45 per cent year on year (y-o-y), respectively.
This comes as the ongoing conflict between Russia and Ukraine has further exacerbated the situation, as both countries collectively control circa 19 per cent of the world’s barley supply, resulting in barley prices rising by circa 34 per cent year to date.
The war also threatens the supply of aluminium, sending aluminium prices soaring by 45 per cent year to date.
“We highlight that raw material and packaging costs accounts for 8.3 and three per cent of Carlsberg (FY21) and Heineken’s (FY20) revenues, as the companies have been actively managing their costs by way of hedging, cost optimisation efforts and working closely with procurement partners,” HLIB Research said.
“In any case, we are not overly concerned on the brewers’ profitability as we think they have the ability to raise prices, given the relatively inelastic demand for beer.
“Apart from the brewers’ ability to pass on the higher costs to consumers, we think that the be er operating leverage expected in CY22 should also help support margin recovery, as we do not foresee any forced brewery closures.”
Note that the brewers had experienced a 7 and 11 weeks shutdown in CY20 and CY21 due to lockdowns. The brewers’ “premiumisation push” should also help improve overall margins, as the premium beer segment is more lucrative in nature, partially due to its higher price points.