• 9M22 core net profit of RM310.4m (+106.6% yoy) beat expectations, due to stronger-than-expected sales volume in 3Q22.
• We expect qoq malt liquor market (MLM) volume improvement in 4Q22F, driven by the ongoing recovery in HORECA sales as well as festive demand.
• Maintain Add, with a higher DDM-based TP of RM28.10.

9M22 core net profit rose 106.6% yoy; beat expectations

3Q22 core net profit came in at RM111m (+117.3% yoy), after accounting for one-off losses of RM2.1m (write-off of inventories). The earnings beat in 3Q22 was owing to: i) strongerthan-expected sales volume, especially from the on-trade segment; and ii) more profitable sales mix (bigger proportion of premium beers). This brought 9M22 core net profit to RM310.4m (+106.6% yoy), above expectations at 91.4% of our and 89.2% of Bloomberg consensus full-year estimates. No dividend was declared for 3Q22, as expected.

A splendid 3Q22 driven by higher on-trade sales

On a qoq basis, 3Q22 revenue and net profit rose 11.8% and 29.0%, respectively, even though HEIM’s 3Q is typically weaker than its 2Q due to seasonality factors. The strong qoq performance was driven by strong sales volume, especially from its on-trade segment, despite the price hikes implemented during the quarter. 9M22 revenue and core net profit rose 60.3% and 106.6%, respectively, thanks to low base effect. As 9M21 was affected by Covid-19 restrictions, it saw robust improvement in sales volume yoy and a more profitable sales mix (on-trade sales high have margins, in our view).

Expect strong sales volume in 4Q22F

We expect HEIM to record stronger qoq results for 4Q22F, on the back of higher sales volume as well as uplift from the hike in its selling prices (6-8% in our estimates) effective 1 Aug. The former will be driven by festivities, such as Christmas, as well as the FIFA World Cup championship which falls during the quarter. We also expect the higher selling prices to aid HEIM in maintaining its margins, by allowing HEIM to pass on the recent cost hikes.

Demand to be supported by strong affordability and tourist arrivals

Despite the weakening consumer sentiment amid rising inflation, we believe HEIM’s sales volume in 4Q22F will not be negatively impacted by its price hikes. Our view is premised on: i) beer being still the cheapest form of alcohol in Malaysia and ii) increase in demand from growing tourist arrivals and ongoing recovery in on-trade sales (low base effect as night entertainment outlets resumed operations only in May 2022).

Reiterate Add; TP raised to RM28.10

With the results beat in 3Q22, we raise our FY22-24F EPS to account for higher sales volume and better sales mix. Our DDM-based TP is raised to RM28.10 (Beta: 0.7x, Rf: 4.5%. g: 3.2%). We continue to like HEIM for i) its attractive valuations (CY23F P/E is at a 40.2% discount to its 5-year mean of 24.7x); ii) it benefits from a recovery in economic activity, mainly on-trade activities; and iii) its strong brand equity.

Source: CGS-CIMB Research - 9 Nov 2022