BMI View: We hold an optimistic view on the Malaysian consumer through to 2019, although conditions will remain challenging throughout the rest of 2015. Our Asia Country Risk team forecasts real private consumption growth at 4.0% in 2015, on the back of 4.2% real GDP growth. We expect the combination of increased taxes (GST has been implemented since April 1) a weaker currency and relatively high household debt to weigh on private consumption in Malaysia in 2015 and beyond. As a result, real private consumption will slow down from 7.3% in 2014 to 4.0% in 2015. Over the next five years, it will average 4.9% annually, down from 7.1% in the previous decade. Despite continuing concerns about fuel price hikes, we believe declining global grain prices, subdued money supply growth and benign wage price pressure will keep Malaysia's consumer price inflation moderate as we head through 2015.
Headline Industry Data
2015 total food consumption sales growth (local currency): +3.7%; compound annual growth rate (CAGR) 2014-2019: +3.3%.
2015 per capita food consumption sales growth (local currency): +2.1%; CAGR 2014-2019: +1.9%.
2015 total soft drinks value sales growth (local currency): +3.6%; CAGR 2014-2019: +3.7%.
2015 total MGR value sales growth (local currency): +7.3%; CAGR 2014-2019: +7.5%.
Key Industry Trends
Baby Food Market Reaches USD443mn In 2014: The overall value of baby food market in Malaysia increased by more than 60% to USD443mn in 2014 from 2008, according to Canadean. The growth has been attributed to rising incomes, a decline in births and the trend towards super-premium and specialised baby food. However, Malaysians purchased 33,413 tonnes of baby food in 2014, representing an increase of just 3.6% from 2008. The market is lead by multinational brands most notably Danone, Nestle and Dutch Lady, which together accounted for 75% of baby food sales by volume in 2014. Baby milk consumption in Malaysia reached around 29,375 tonnes in 2014, accounting for 90% of the market value.
Mondelez Malaysia To Absorb GST Price Increases: It was widely reported in March 2015 that Mondelez Malaysia intended to absorb the cost of the country's new Goods and Services Tax (GST) when it comes into effect on 1 April 2015. The company's Managing Director, Pete Bingeman, said that 'we will be implementing a 5.7% price cut on our product list to maintain the prices that we give to our retail partners and distributors'.
Fraser & Neave To Build New Beverage Plant: Fraser & Neave Holdings (F&N) announced in March 2015 that it was to invest more than MYR100 million in building a new beverage plant in the Kota Kinabalu Industrial Park in eastern Malaysia. Demand in the last three years has meant that production at the company's current plant in Kota Kinabalu increased by 20% and the facility is now operating at close to its maximum annual production capacity of 4 million cases. The new plant will become operational within the next six years and will have the capacity to double the company's current output needed to service the growing demand in Sabah and Sarawak.
Aeon Shows Interest In Tesco Malaysia: In July 2015, Japan-based retailer Aeon was interested in acquiring the Malaysian division of UK-based retailer Tesco, valued at about GBP900mn (USD1.4bn), reported the Economic Times. Buying the business would make Aeon Malaysia's biggest hypermarkets group. Aeon has 28 hypermarkets in the country and plans to open 100 more stores in various formats by 2020. Sime Darby, which owns 30% of Tesco's Malaysian arm, released a statement saying it would assess opportunities that may improve shareholder value. However, Tesco has not yet indicated that it is looking to sell its Malaysian business.
Risks To Outlook
The main risk to our view of strong Malaysian economic growth comes from the country's export vulnerability, largely due to the country's close trading ties with China. Indeed, Malaysia's trade exports to China as a share of GDP surged from 14.4% in 2008 to 23.1% in 2011, the highest among our group of Association of Southeast Asian Nations countries, which leaves it vulnerable to a slowdown in Chinese economic activities.