Heineken’s 1Q18 core PAT of RM48.8m (-47.9% QoQ, -0.4% YoY) was within ours and consensus expectations. Weaker QoQ earnings were due to year-end festive season and early sales linked with Chinese New Year 2018 in 4Q17. Going forward, we expect improving consumer sentiment to bode well for the group’s top line. Maintain Hold call and TP of RM18.13 based on DCF valuation methodology (WACC: 8.0%; TG: 3.0%)

In line. Reported 1Q18 core PAT of RM48.8m accounted for 16.9% and 16.6% of ours and consensus forecasted PATs, respectively. Note that 1Q is seasonally weaker, usually accounting for 16-18% of full year earnings.

Dividend. None declared.

QoQ. Revenue decreased by 29.2% from RM612.7 to RM433.8m due to year-end festive season and early sales linked with Chinese New Year 2018 in 4Q17.Core PAT decreased to RM48.8m (-47.9%) from RM93.6m for similar reasons.

YoY. Better top line (+10.5%) that was driven by higher sales volume from effective execution of commercial campaigns for the festive period did not translate to higher core PAT (-0.4%) due to timing differences of commercial expenses.

Outlook: Rebounding consumer spending in FY18 should benefit Heineken’s top line. We expect Heineken to continue its mission of becoming the ‘leading brewer of inspirational brands’ with the availability of new products such from the Tiger Radler line (which includes a lime and mint flavour of 0% alcohol) going forward. Heineken shared the persistence of the large contraband market will continue to impact business.

Forecast. Unchanged.

Maintain HOLD. We like Heineken for its greater market share in a duopolistic industry, resilient earnings, low capex requirements and decent dividend yield. However, at the current share price, we reckon the stock is fairly valued. We maintain our DCF derived TP of RM18.13 and HOLD call (WACC: 8.0%; TG: 3.0%)

Source: Hong Leong Investment Bank Research - 14 May 2018