Reported FY18 core PAT of RM282.5m was in line with ours and consensus expectations, accounting for 98.6% and 97.6% of respective forecasts. We expect the group to incur higher raw material and packaging costs in line with rising commodity price inputs. However, we expect this to be partially mitigated by increasingly severe crackdown on illicit trade, which should drive volumes back to legal players. As earnings yielded no surprises, we maintain our forecasts. At the conclusion of FY18, we roll over our valuation year. In doing so, our TP rises from RM19.20 to RM21.00. Our TP is based on DCF valuation methodology (WACC:8.0%, TG: 2.5%). We maintain our HOLD call.

In line. Reported FY18 core PAT of RM282.5m was in line with ours and consensus expectations, accounting for 98.6% and 97.6% of respective forecasts.

Dividend. Proposed dividend of 54 sen per share, bringing cumulative dividend in FY18 to 94 sen per share (4Q17: 49 sen, FY17: 89 sen).

QoQ. Sales grew 29.3% to RM662.3m, driving bottom line growth of 26.8% to RM100.0m. The strong growth was primarily driven by pre-CNY selling, SST pricing implementation and effective cost management. Note that 4Q is seasonally the strongest quarter due to retailers stocking up on inventory for CNY festivities in 1Q of the following year.

YoY. Core PAT rose 6.5% mainly due to increased sales from mainstream brand Tiger beer as well as effective advertising and promotional spending campaigns.

YTD. FY18 sales of RM2,029.7m (a record high for the group) represented an 8.3% increase YTD. Core PAT grew 4.6% to 282.5m from 270.1m. Heineken attributed the better performance to the increase in sales volume in Tiger and both cider brands (Strongbow, Apple Fox) from successful marketing campaigns as well as price adjustments (implemented in April 2018).

Outlook: We expect the group to incur higher raw material and packaging costs in line with rising commodity price inputs. However, we expect this to be partially mitigated by increasingly severe crackdown on illicit trade, which should drive volumes back to legal players. We opine that the potential of an alcohol excise duty hike is unlikely in the near term as it would only serve to encourage illicit trade, which is being targeted by government authorities at the moment.

Forecast. As earnings yielded no surprises, we maintain our forecasts.

Maintain HOLD. At the conclusion of FY18, we roll over our valuation year. In doing so, our TP rises from RM19.20 to RM21.00. Our TP is based on DCF valuation methodology (WACC: 8.0%, TG: 2.5%). We maintain our HOLD call.

Source: Hong Leong Investment Bank Research - 21 Feb 2019