Results

• 18MFY16 revenue of RM2.8bn and net profit of RM427.3m accounted for 101.8% and 104.2% of our estimates and consensus, in line with expectations.

Dividends

• Declared a dividend of 60 sen/share taking 18MFY16’s dividend to RM1.45/share (18MFY15: RM1.21/share). This represents a total payout and yield of 103% and 9.1% for the 6 quarters.

Highlights

• Qoq: Revenue grew by 50.1% qoq driven by higher volume off take from festive demand (Diwali, Christmas and New Year) and the low base effect. Recall that the previous quarter was an abnormally slow quarter attributed to 1st July price increase of circa 2.5% as well as sales tapering off due to some pre-emptive stocking up by distributors in 4Q16 in anticipation of the price hike. Subsequently, PAT grew by 83.9% whilst margins improved by 3.34ppts as demand for premium brands ramped up amidst the festivities.
• Yoy: Revenue grew by 10.1% yoy driven by strong growth in premium brands (Heineken & Guinness), growth in the modern off trade channel and the earlier timing of CNY. Subsequently, PAT grew 15.3% yoy whilst margins expanded by 0.81ppts.
• Management guided that there has been a rise in contraband beers, which isn’t surprising as affordability issues plaguing Malaysian consumer’s starts to take its toll on the industry.
• Anchor is the strongest growing brand in the portfolio, whilst Tiger saw a decline offset by the growth of premium brands (Heineken & Guinness).
• The modern off trade continues to be the key growth channel and has benefited from this evolution in consumer drinking habits, growing at the expense of the on trade channels on the back of lackluster sentiments.
• Moving forward we expect the group to benefit by leveraging on Heineken group’s procurements. The operations against contrabands are expected to be ongoing. Nonetheless, we do anticipate a slower two upcoming quarters on the back of a dry festive calendar for the first half FY17 and as consumption normalizes post festivities season.

Risks

• Risks to this stock arise from two venues: 1) overhang of the customs bill to the amount of RM56m for duties and penalties in arrears. 2) Prolonged soft consumer sentiment bounds total industry volume growth.

Forecasts

• We adjust our opex assumptions for FY17-18 on the anticipation of higher marketing & promotional spend in the near term. Consequently FY17-18 EPS is lowered moderately by 4%.

Rating

BUY ↔

• We like Heineken for its relatively high dividend yield, greater market share in a duopolistic industry, resilient earnings and low capex requirements. Furthermore, we believe the risk of a duty hike is nullified by rebasing of the excise calculation.

Valuation

• Our DCF derived TP is revised to RM18.15 (WACC: 8.00% TG: 3.0%).from RM18.52 following our earnings cut.

Source: Hong Leong Investment Bank Research - 16 Feb 2017