Investment Highlights

• We maintain our HOLD recommendation with an unchanged DCF-derived fair value of RM18.50/share on Heineken Malaysia (HEIM). We like HEIM for highly defensive earnings properties and its attractive dividend yields of 4.6-4.6% for FY18F-FY20F. However, we opine that these are fairly priced in with implied PE valuations trading at 21.8x, which is +1SD above its 3- year mean.

• HEIM recorded a 1QFY18 net profit of RM48.8mil (QoQ: -47.9%, YoY: -0.4%) against a revenue base of RM433.8mil (QoQ: -29.2%, YoY: 10.5%). It was in line with ours and consensus estimates at 17% and 16% respectively.

• No dividend was declared as expected.

• HEIM's results key highlights included: i. Topline for the quarter grew by 10.5% YoY on the back of purchases tied to CNY spending. However, revenue growth was marginally dampened as the quarter saw some trade destocking. ii. Operating margins came off 1.5ppts to 15.1% YoY due to higher commercial spending and promotional costs tied seasonal timing of the festivities. iii. Management changed its official outlook tone, one of more optimism. They are quoted to be “cautiously optimistic” from “market conditions to remain challenging” from previous quarters.

• Outlook on HEIM going into FY18F: i. Trade destocking was due to holding off of purchases leading up to ASPs being revised. Blended ASPs were hiked around 5% on 15 April. Meanwhile, some malt liquors appear to have its alcohol content adjusted, therefore resulting in lower excise duties paid. ii. Trade restocking coinciding with higher ASPs for the latter 9M18 should see robust topline growth. Meanwhile, better product mix and lower promotional and commercial spending should furnish better margins for the remainder of FY18.

• We leave our earnings forecast unchanged. Key risks to our forecast include excise duty hike and an unfavourable outcome of unresolved bills of demand with the Royal Malaysian Customs amounting to RM56.3mil or 20% of FY18F earnings. HEIM's strong free cash flows and low net gearing level of 20% should hold it in good stead to sustain dividends.

Source: AmInvest Research - 14 May 2018