Reported 9M18 core PAT of RM182.5m was in line with ours and consensus expectations, accounting for 65.5% and 64.9% of respective forecasts. We keep forecasts unchanged. Our HOLD call is maintained with a lower TP of RM19.20 (from RM23.20 previously) (WACC: 8.0%, TG: 2.5%) after changing our DCF valuation parameters to account for higher risk of alcohol excise duty hike. (previously, WACC: 7.4%, TG: 3.0%)

In line. Reported 9M18 core PAT of RM182.5m was in line with ours and consensus expectations, accounting for 65.5% and 64.9% of respective forecasts. We deem this in line as 4Q is seasonally a significantly strong quarter, historically accounting for 35%-38% of full year earnings.

Dividend. None Declared (3Q17: None Declared).

QoQ. Sales accelerated by 21.5% primarily due to sales tax holiday for the first two months of 3Q18. Core PAT was higher by 43.7% to RM78.9m was a result of favourable effective tax rate, timing of marketing spend and increased top line.

YoY. Bottom line grew 19.7% to RM78.9m mainly due to favourable tax rate, in addition to better sales from sales tax holiday.

YTD. 9M18 revenue grew 6.5% due to sales tax holiday between June and August, which spurred consumer spending as well as the price adjustment in April 2018. Despite higher operating expenses (associated with increased commercial spending), Heineken’s bottom line grew 3.5% as a result of favourable effective tax rate.

Outlook: Despite the presence of contraband alcohol in the market, Heineken continues to grow sales with its portfolio of iconic brands (Guiness, Heineken, Tiger, Strongbow etc.). The group will continue to focus on improving operational efficiencies, which should drive profitability. Additionally, the rebounding consumer sentiment bodes well for the group going forward. Although unlikely, we are nonetheless cautious on the potential of an alcohol duty excise hike which would result in lower volumes.

Forecast. Unchanged.

Maintain HOLD. We tweak our DCF parameters to account for higher risk of excise duty hike as we anticipate the government will look to collect more tax revenues which could impact breweries. Our TP falls from RM23.20 to RM19.20 based on DCF valuation methodology (WACC: 8.0%, TG: 2.5%) (previously: WACC: 7.4%, TG: 3.0%). Our HOLD call is maintained.

Source: Hong Leong Investment Bank Research - 1 Nov 2018