Results

• Inline: FY17 revenue of RM1.9bnm translated into net profit of RM270.1m which came in within expectations, accounting for 96.5% and 98.5% of ours and consensus estimates, respectively.

Dividends

• Proposed 50 sen (4Q16: 60 sen) per share. Total dividend for FY17 amounted to 90 sen (FY16: 95 sen) per share representing 100.6% payout, in line with our expectation.

Highlights

• QoQ: Net profit grew 42.2% due to (1) increased sales from off-trade channels in preparation for CNY 2018; and (2) strong performance from locally brewed Apple Fox cider (which was launched in August 2017). Note that Strongbow cider is brewed overseas.
• YoY: Net profit slumped 10.5% despite revenue growing 6.1%. This was attributed to unfavourable sales mix (higher volume growth from Tiger sales).
• YTD: Revenue grew slightly by 2.6% due to better sales volumes. PBT grew 4.6% due to efficiency gains from the supply chain and cost optimization.
• Cider segment: Heineken have reported that cider sales have continued to grow strongly in the past six months which is expected to grow further with planned marketing investment from the group. We do not expect the growth of the cider segment to cannibalise beer or stout sales as we hypothesise cider drinkers are more likely to be consumers that have switched over from non-alcoholic beverages.
• Lifestyle products: Heineken aim to be the ‘leading brewer of inspirational brands’ going forward. Tiger Radler line (which contains a lime and mint flavor of 0% alcohol) is targeted at non-alcohol consuming consumers and Heineken which aligns itself with high-lifestyle sporting events (UEFA Champions League and Formula 1) targets drinkers with discerning taste.
• Prospects: We expect 1Q18 earnings to be significantly stronger due to CNY festivities. While Heineken should theoretically benefit from stronger ringgit due to their raw materials being purchased from overseas, Heineken have advised that they expect a lag effect due to their long term hedging policy.

Risks

• Prolonged depressed consumer sentiment, hike in alcohol excise duty.

Forecasts

• Unchanged.

Rating

HOLD ↔

• We like Heineken for its relatively high dividend yield, greater market share in a duopolistic industry, resilient earnings and low capex requirement. However, at the current share price, the stock is a HOLD as it’s fully priced.

Valuation

• We maintain our DCF derived TP of RM18.13 and HOLD call (WACC: 8.00% TG: 3.0%).

Source: Hong Leong Investment Bank Research - 15 Feb 2018