Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 17 Jan 2020, 9:35 AM


Heineken Malaysia - Here’s to a Stronger FY19

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9MFY19 earnings of RM221.8m (+21.5%) beat expectations on stronger sales and better margins in 3QFY19. Moving forward, we expect a lumpy 4Q on forward buying for Chinese New Year (CNY), though profitability could be slightly shadowed by higher marketing spends. Upgrade to OUTPERFORM with a higher TP of RM28.60, following an earnings upgrade to account for stronger sales. Consistent yield of c.4% is also deemed to be attractive.

Above expectations. 9MFY19 net profit of RM221.8m came in exceeding expectations, at 76% and 73% of our and consensus forecasts, respectively. We believe the positive surprise is largely driven by stronger-than-expected sales momentum coupled with better-than- expected margins in 3QFY19 thanks to the phasing of commercial spends. Note that 4Q is a seasonally stronger quarter (takes up c.35% of full-year earnings) on the back of CNY-led buying. The absence of dividend is deemed to be within expectations.

Stronger volume flow. YoY, 9MFY19 earnings rose 22%, largely attributed to stronger sales growth (+20%) across all brands and slightly improved EBIT margins (+0.6ppt) on better cost efficiency. For the individual quarter of 3QFY19, net profit registered a commendable 31% YoY growth, thanks to: (i) sustained sales momentum (+18%), which we reckon could be due to better acceptance for its new launches (i.e. Tiger Crystal) on top of sturdier demand for the core brands, coupled with (ii) wider EBIT margin (+3.5ppt) on phasing of marketing spends and cost productivity.

QoQ, 3QFY19 earnings soared 57% to RM103.3m as sales were stronger by 18%, similarly due to the foresaid reasons. Notably, EBIT margin expanded by 6.1ppt to 22.7%, as the commercial spends for the new products (to be launched in 3Q) are timed in 2Q.

Drinkies will deliver your drinks to you. Here forth, we believe that earnings will persist to be boosted by steady demand for the group’s core brand and the new launches (i.e. Tiger Crystal). This is premised on: (i) inelastic beer demand as evidenced by the minimal impact observed from prior price hikes, and (ii) improving operating environment as government’s efforts to clamp down contraband beer appears to be effective. Moreover, we are also positive on the group’s newly launched e-commerce platform, “Drinkies.my” which allows customers to enjoy express cold delivery of alcoholic beverages. We believe the convenience would aid in boosting demand, creating a new revenue stream moving forward. On a flip side, an anticipated stronger 4Q could be slightly shadowed by higher CNY commercial spends. Upgrade to MARKET PERFORM with higher TP of RM28.60 (from RM24.25) as we upped our FY19E/FY20E earnings by 18%/18% to account for better sales. Our TP is based on 24.0x PER (roughly in-line with +1SD over its 3-year mean) as we like the name for its better earnings outlook on the back of an improving operating environment and sustainable sales momentum. A decent yield of c.4% could also offer some defence against current market uncertainties. Nonetheless, HEIM is valued at a slight discount against its peer CARLSBG’s 27.0x PER as we favour the latter for its premiumisation growth story.

Downside risks to our call include: (i) weaker-than-expected sales volume, and (ii) further excise duty hike.

Source: Kenanga Research - 29 Nov 2019

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