Reported 2Q19 core PAT of RM65.7m (QoQ: +24.4%, YoY: +19.7%) brought 1H19 core PAT to RM118.5m (YoY: +14.3%), accounting for 38.9% and 39.0% of ours and consensus expectations. We deem this in line as 1H usually makes up 37- 43% of full year earnings. As earnings were in line, we keep our forecasts unchanged. Our TP of RM21.00 based on a DCF valuation methodology (WACC: 8.0%; TG: 2.5%) and HOLD call is maintained.

In line. Reported 2Q19 core PAT of RM65.7m (QoQ: +24.4%, YoY: +19.7%) brought 1H19 core PAT to RM118.5m (YoY: +14.3%), accounting for 38.9% and 39.0% of ours and consensus expectations. We deem this in line as 1H usually makes up 37- 43% of full year earnings.

Dividend. DPS of 42 sen (2Q18: 40 sen) was declared, going ex on 25/9/19. 1H19: 42 sen vs, 1H18: 40 sen.

QoQ. Despite top line decline of 2.4% (due to CNY occurring in 1Q19), core PAT grew 24.4% from lower marketing spend and better supply chain efficiencies.

YoY. Sales grew 21.6% (15.0% after excluding SST impact) mainly from volume growth in core brands. Core PAT grew by 19.7% in tandem with higher sales.

YTD. Top line of RM1,037.7m represented 21.3% growth (14.0% after excluding SST impact) from robust performance during festive period in 1Q19 and continued growth in core brands in 2Q19. Bottom line grew 14.3% in tandem with better top line.

Outlook: We expect Heineken to continue to invest in core brands (Tiger, Heineken, Guinness) which should result in volume growth. Note that Heineken realised significant volume growth with marketing campaigns such as Uncage New Beginnings (CNY) (Tiger), St. Patrick’s Festival (Guinness) and ‘Unmissable” UEFA Champions League (Heineken), all of which resulted in strengthening the brands’ commercial positions. Furthermore, we expect Heineken to grow newly launched Heineken 0.0 (0% alcohol beer) and Tiger Crystal in order to cater to changing consumer preferences. On the excise duty front, we do not expect the government to raise alcohol excise duty as Malaysia already has the third highest excise duty structure behind Norway and Singapore.

Forecast. As earnings were in line, we keep our forecasts unchanged.

Maintain HOLD. Our TP of RM21.00 based on a DCF valuation methodology (WACC: 8.0%; TG: 2.5%) and HOLD call is maintained. While we like Heineken for its strong brand portfolio (Tiger, Heineken, Guinness, Strongbow) leading market share position in Malaysia (of approximately 60%), and newly launched products, we reckon it is fairly valued at current price levels.

Source: Hong Leong Investment Bank Research - 21 Aug 2019