Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Mon, 20 Jan 2020, 9:38 AM


Heineken Malaysia Berhad - 1H19 Broadly Within

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1H19 net profit of RM118.5m (+14% YoY) and declared dividend of 42.0 sen are broadly within expectations. Here forth, the group’s earnings are likely to be sustained by its steady core brands growth coupled with a stable operating environment. Nonetheless, we maintain MP with unchanged TP of RM23.25 as we favor its peer, CARLSBG (OP; TP: RM25.95) for its exciting “premiumisation” growth prospects and potential market share gain.

Broadly within. HEIM recorded 1H19 net profit of RM118.5m, coming in broadly within expectations at 41%/39% of our/consensus forecasts, respectively. Declared dividend of 42.0 sen is also within expectation, versus our full-year estimate of 95.0 sen.

Overall better result YoY. 1H19 net profit grew 14%, on the back of better sales (+21%) from greater volume seen across the group’s core brands. Nonetheless, this is slightly dented by heftier marketing spends for the first half, from 1Q’s CNY promotions and preparation for new product launches in 3Q19 (i.e. Heineken 0.0 and Tiger Crystal). This led EBIT margin to narrow by 1.1ppt to 15%. For 2Q19, earnings rose by 20% YoY to RM65.7m, in-line with a 22% growth in revenue similarly due to the aforementioned reasons.

Sequentially, 2Q19 earnings were up by 24%, albeit with a softer revenue (-2%) against a seasonally stronger driven 1Q19. The earnings growth was buoyed by better EBIT margin of 17% (+3ppt), owing to relatively lower marketing spends in 2Q, as opposed to heavier CNY marketing efforts in 1Q19.

Growth momentum sustained by core brands. Moving forward, we believe earnings are likely to be sustained by the group’s steady core brand growth. This is premised on: (i) inelastic beer demand as evidenced by the minimal impact observed from prior price hikes arising from SST and cost-pass through adjustments, and (ii) fairly stable operating environment as we deem further excise duty hike to be unlikely. Moreover, we gathered that the newly launched Tiger Crystal is also gaining traction among consumers who prefer “sessionable” beers (i.e. less bitter beer), which could act as a new revenue stream further down the road. On a flip side, we anticipate marketing efforts to be aggressive for 2H due to continuous marketing spends for its new launches coupled with a fresh round of marketing efforts for next year’s CNY.

Maintain MARKET PERFORM with an unchanged TP of RM23.25 as we made no changes to our forecasts post-results. Our TP is based on 23.0x PER (roughly in-line with +1SD over its 3-year mean) which is reflective of the group’s defensive earnings nature coupled with a decent dividend yield of c.4%. We value HEIM at a discount against its peer, CARLSBG (of 26x PER) due to latter’s: (i) more favourable growth prospects in terms of its growing premium beer portfolio, and (ii) a possible shift in market share between the brewers. Based on our back of the envelope calculations, CARLSBG has been gaining market share (from around 37% to 41%) at the expense of HEIM’s declining market share (from around 63% to 59%) for the past three years.

Risks to our call include: (i) stronger/weaker-than-expected sales volume, and (ii) further excise duty hike

Source: Kenanga Research - 21 Aug 2019

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