Heineken’s price hikes to protect group’s margins

PETALING JAYA: Heineken Malaysia Bhd’s proposed move to raise the prices of its products due to cost pressures will likely prolong any recovery in demand in the second half of the year, analysts say.

Anticipating the brewer’s rivals to do the same, Maybank Investment Bank Research (Maybank IB) contends that persisting inflationary pressures will keep consumer spending in check despite the price stickiness Heineken’s products enjoy.

“Given Malaysia’s beer market is dominated by a duopoly, we believe Carlsberg Brewery Malaysia Bhd is likely to follow suit with price increases of a similar quantum.

“Historically, industry price adjustments have led to weaker sales volumes in the following two to three months,” the research house said in a report.

The research house expects Heineken to raise product prices between 2% and 8% across the bulk of its product portfolio – effective August for trade channels and September for retail channels.

The group last raised prices in April last year by between 5% and 8%.

Maybank IB has thus lowered its earnings estimates for Heineken for this year, next year and 2027 by 6% a year, upon adjusting lower its volume growth assumptions this year by 5% year-on-year (y-o-y) versus growth of 3% y-o-y earlier, taking into consideration the price increases.

“Although Heineken’s sales volume growth may slow, its price hikes will aid in defending group margins. We also expect front-loading activity to occur in the third quarter before the price hikes take effect,” the research house said.

It maintained its “buy call” on the brewer with a lower target price of RM31 a share from RM33 previously.