Better growth for breweries this year
KUCHING: With the brewery sector’s financial year 2017 (FY17) results ending within expectations, the research arm of Affin Hwang Investment Bank Bhd (AffinHwang Capital) is expecting that FY18 will be a better year in terms of stronger beer consumption backed by private consumption spending.
In a sector update report, total beer volume growth in Malaysia for the past two years has been on the weaker side with low-single digit figures as compared to the estimated 3 per cent compound annual growth rate (CAGR) of 3 per cent over the 2010-2015 period.
The weakness was attributed to weak consumer sentiment and increases in average selling prices arising from the GST implementation in 2015 and increases in excise duties of alcohol products in 2016.
However, with improvements in macroeconomic data and higher disposable income through Budget 2018, AffinHwang Capital believed private consumption spending was set to see a boost with estimates of total beer volume growth in FY18-19 standing at circa 4 per cent per annum.
Besides a boost in private consumption spending, the research arm also highlighted another positive growth catalyst being the 2018 FIFA World Cup Event which will take place in Russia from June 14 to July 15 this year.
“A total of 64 matches will be played during the period in 12 venues located in 11 cities.
“The airtime of the live matches this year is more favourable compared to the ones in the past, with around 36 matches or 56 per cent of total matches played at the prime time of 8pm to 12am when most adults get to watch the matches after work,” said the research arm.
As beer consumption and sporting events are closely linked, it makes sense that the sporting event and its favourable timing would help uplift consumption volumes.
However, AffinHwang Capital believed the potential volume lift was unlikely to provide a meaning boost to the full-year beer volume due to the event’s relatively short duration.
“Historically, growth rates of beer consumption were not significantly stronger in the past when World Cup events took place.
“We think a better comparison would be 2010 World Cup, which took place in South Africa when 39 matches or 61 per cent of total matches were played between 6pm to 12 am.
“In 2010, total beer consumption grew by circa 4 per cent year over year (y-o-y) to 1,500 KHLs compared to circa 7 per cent y-o-y in 2009 and 5.6 per cent y-o-y in 2011.
“Note that the beer volume growth was flattish in 2002 when South Korea and Japan were the hosts of the World Cup,” it explained.
Still, even without accounting for the potential catalyst from the FIFA World Cup event, Affin Hwang Capital believed total beer consumption in 2018 should show better growth than 2016 and 2017.
It thus maintained its beer volume forecast of 4 per cent growth per annum for FY18-19.
Additionally, with both Heineken Malaysia Bhd ( Heineken) and Carlsberg-Malaysia-Bhd(Carlsberg) launching several new premium products to attract more drinkers, it is expected that their product mix will improve while their profit margins will improve further.