KUALA LUMPUR (Sept 5): With the rising cost of living, the ringgit at its weakest since the Asian financial crisis and consumer sentiment at its softest in a long time, demand for beer and stout has been subdued. But the country’s two brewers are still confident they can generate decent earnings, according to the digitalEdge weekly in its latest edition.

The digitalEdge’s Adeline Paul Raj, Kamarul Azhar and Liew Jia Teng wrote that in late 2008, when the local benchmark index sank to 829.41 points — one of its lowest levels ever — amid the global financial crisis, Daniel Nadraj, a professional stock trader, would head out for cold beers about twice or thrice a week to de-stress.

They said these days, he does not drink as often despite the return of a woeful stock market — on Aug 24, the FBM KLCI fell to 1,532.14 points, its lowest level in three years.

Besides being more health-conscious, Daniel, who is in his thirties, has chosen to cut back on beer as he is feeling the pinch from the higher cost of living now, they quoted him as saying.

The digitalEdge said it was no surprise that local brewers Guinness Anchor Bhd (GAB) and Carlsberg Brewery Malaysia Bhd (Carlsberg Malaysia) were facing arguably their toughest time in Malaysia as an increasing number of consumers like Daniel watch their spending, spooked by the weakening economy and rising cost of living.

It said apart from the soft consumer sentiment and a much weaker ringgit these days, the brewers also find themselves having to deal with a newly amended law — the Price Control and Anti-Profiteering Act 2011 — which limits their ability to defend profit margins, at least up until June 2016.

Then, there’s the possibility the government may later this year raise the excise duty on beer — already the third highest in the world after Norway and Singapore — even as the brewers fight to keep the contraband beer market down, it said.

It said the two beer players, in exclusive interviews with digitaledge Weekly, admit they have got their work cut out to revive the sluggish demand for beer and stout (collectively known as malt liquor).

“This year is probably the most difficult for the malt liquor market in Malaysia. But I think it is not just for the malt liquor market but a lot of industries actually,” the weekly quoted Henrik Juel Andersen, managing director of Carlsberg Malaysia, as saying in an Aug 10 interview.

The digitalEdge said although the revenue of both companies grew in the first six months of this year, their net profit growth was muted.

It said Carlsberg Malaysia’s revenue for the period grew 3.7% year on year to RM831.78 million. However, net profit fell by 14.6% to RM78.94 million. The group’s underlying profit from operations decreased by 3% y-o-y to RM115.6 million.

Meanwhile, revenue for GAB in those six months to June rose 6.3% to RM835 million while net profit grew just 1.2% to RM83.5 million.

It should be noted that unlike Carlsberg Malaysia, GAB’s financial year ends on June 30, it added.

The digitalEdge said both companies, however, reckoned that they can generate decent earnings in their full financial year with a bit of innovation and an increased focus on high-margin “premium” products while improving cost efficiency. 

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For details on how the brewers plan to tackle the challenges going forward, read the digitalEdge edition for the week of Sept 7 – Sept 13.