THE latest move by Carlsberg Brewery Malaysia Bhd to raise product prices for selected products and brands effective July 1 has not affected its stock valuation judging from Maybank IB Research reiterating its “buy” rating on the brewer along with an unchanged DCF (discounted cash flow)-based target price of RM27.80.
This is despite the research house being unsure of the quantum of increase at this juncture. The last product price increase (by +6%-7%) was made about six months ago.
“We caution that demand could soften in 3Q FY2022 given the ongoing cost inflationary environment before seeing an uptick in 4Q 2022 alongside year-end festivities,” projected analyst Jade Tam.
Carlsberg Malaysia had on June 2 confirmed that it will raise product prices effective July 1 in view of rising input costs but declined to comment on either the quantum of increase or the products that will be affected.
Cognisant of the potential negative impact to demand, Carlsberg Malaysia has shared that it may offer added discounts through sales incentives across its sales channels in order to ease consumers’ transition to a higher price landscape.
“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,” opined Maybank IB Research. “Note that historically, weak demand could persist for circa two to three months following product price hikes.”
On raw materials, Maybank IB Research said Carlsberg Malaysia has not experienced any shortages as it has lengthened its stock holding (estimated to exceed six months) to avoid any disruptions to its production chain.
“The group usually hedges a significant portion of its requirement at the beginning of every year,” the research house pointed out. “Separately, its plant upgrade to replace two bottling lines with one higher capacity line is presently in full swing and is targeted to be completed by early-4Q 2022.”
Interestingly, fellow Bursa Malaysia-listed brewer Heineken Malaysia Bhd has remained coy on any price hikes for its products, preferring to say it will continue monitoring input costs to ensure it remains competitive.
“Strong sales volumes in 1Q 2022 were largely driven by Chinese New Year – however, overall volumes have not recovered to pre-pandemic levels yet,” observed Maybank IB Research.
“Although sales in tourist areas (eg Langkawi) has improved, Chinese tourists have not returned in full force yet, hence Carlsberg Malaysia will focus on growing domestic sales for now, particularly in its on-trade channels.”
Nevertheless, the research house noted that the brewer’s 1Q 2022 premium volume growth (ie Kronenbourg 1664 Blanc, Somersby Cider and Connor’s in a Can) has outpaced its mainstream volumes, hence showcasing that premiumisation trends are still intact.
At 11.21am, Carlsberg Malaysia was down 32 sen or 1.4% to RM22.46 with 21,100 shares traded, thus valuing the company at RM6.87 bil. – June 15, 2022
