Investment Highlights

• We maintain our HOLD recommendation Heineken Malaysia Bhd (HEIM) and DCF-derived fair value of RM18.50/share (WACC: 7.3%, terminal growth: 2.0%). Factoring an uninspiring growth outlook, HEIM's PE valuation is lofty relative to the above 3-year mean of 17.1x currently. However, the dividend yield of 5.0-5.6% for FY17F-FY19F should be supportive of valuations.

• HEIM registered a 3Q17 net profit of RM65.9mil (QoQ: 7.0%, YoY: 15.7%) bringing 9MFY17 net profit to RM176.4mil (YoY: 4.6%). It is in line with our earnings estimates but below consensus at 67% and 62% respectively.

• No dividend was declared as expected.

• Key highlights of HEIM's results include:

i) 3QFY17 top line surged by 32.4% YoY off a deflated corresponding quarter, as sales were front loaded to 2QFY16, in anticipation of a price hike in 3QFY16. Meanwhile, cumulative 9MFY17 revenue trickled in at 1.1% amid 3-5% higher ASPs offsetting a soft patch in volume demand. ii) Despite lower sales, cumulative EBIT margin improved 1.0ppt YoY. Margin improvement was attributed to better product mix and efficiency gains across the company’s entire supply chain. Heineken is still reaping the benefits of “Project Breakout”, an integrated system that enhanced efficiencies and maximised savings through a centralized global procurement platform.

• Outlook on HEIM:

i) We expect lower YoY sales in 4QFY17 due to an unfavourable CNY timing. 4QFY16 captured 2017 CNY sales while 1QFY18 will benefit from 2018 CNY related sales.

ii) We estimate Heineken to grow organic MLM volume by 3-4% heading into FY18 against a backdrop of relative soft but improving consumer spending. Meanwhile, revenue and better margins should be further anchored by premiumisation efforts and widening of its portfolio of products such as with its new cider brand, Apple Fox.

• We maintain our earnings as earnings are within our expectations. Key risks to our forecast include weaker than-expected consumer sentiment and heightened competition.

Source: AmInvest Research - 22 Nov 2017