Investment Highlights

• Heineken Malaysia Bhd (HEIM) FY17 earnings were marginally lower YoY as it came in line with expectations. While we FIFA World Cup to supplement FY18 growth, it may be offset by stiffer competition, especially in the premium segment. Maintain our HOLD recommendation Heineken Malaysia Bhd (HEIM) and DCF-derived fair value of RM18.50/share (WACC: 7.3%, TG: 2.0%).

• HEIM's PE valuation is currently above its 3-year mean of 17.8x, which is unattractive considering the ordinary growth outlook. The stock offers an estimated dividend yield of 4.6-5.4% for FY18F-FY20F.

• HEIM recorded a 4Q17 net profit of RM93.6mil (QoQ: 42.2%, YoY: -10.5%) bringing full-year FYY17 net profit to RM270.1mil (YoY: -1.2%). This was in line with both ours and consensus earnings estimates at 102% and 99% respectively.

• Dividend amounting to 50 sen/share was declared, bringing its total dividends to 90 sen/share for FY17 (FY16: 95 sen/share).

• Key highlights of HEIM's results include: i. 4QFY17 top line grew 6% against spending ahead of CNY celebrations. However, the quarter recognised related commercial spending which weighed on margins, resulting in flattish PBT growth of 0.6% for the quarter YoY. ii. FY17 revenue saw unexciting growth at 2.6%. This was driven by higher ASPs amidst flattish volume growth. It appears its core Tiger brand volume growth have partially offset lethargic performance elsewhere. We believe Carlsberg has repositioned and taken aim at the premium segment, coinciding with Heineken’s performance. iii. FY17 EBIT margin improved 0.4ppts YoY. However, higher financing cost and effective tax rate entailed marginally lower earnings at -1.2% YoY.

• Outlook on HEIM for FY18: i. FY18 is a FIFA World Cup year. Televised matches from Russia will be favourable to Malaysian alcohol consumption patterns unlike the previous football Euro tournaments and recent World Cups. We believe it could be a boost for malt liquor industry, which we have factored into a FY18 2% volume growth for HEIM. ii. We believe the greater competition arising from Carlsberg in the premium segment could be cushioned by HEIM’s efforts for greater integration with Heineken International’s supply chain.

• We maintain our forecasts as earnings have fallen in line. Key risks to our forecast include an excise duty hike and increase in the proliferation of contrabands.

Source: AmInvest Research - 15 Feb 2018