Reported 4Q19 Core PAT of RM91.2m (QoQ: -11.9%, YoY: -8.9%) Brought FY19 Core PAT to RM313.6m (YoY: +10.9%), Which Was in Line With Ours and Consensus Expectations, Accounting for 98.2% and 96.7%, Respectively. We Keep Our Forecasts Unchanged. At the Conclusion of FY19, We Roll Over Our Valuation Year, Resulting in Our TP Rising From RM28.90 to RM31.00 Based on An Unchanged DCF Valuation Methodology (WACC: 7.5%, TG: 2.5%). Despite Our Higher TP, We Downgrade Our Call From a Buy to a HOLD as We Reckon Heineken Is Fairly Valued at Current Price Levels. Note That Since Our Last Upgrade to a BUY in Oct-19, the Share Price Has Risen by 29.2%.

In line. 4Q19 core PAT of RM91.2m (QoQ: -11.9%, YoY: -8.9%) brought the full year FY19 amount to RM313.6m (YoY: +10.9%), which was in line with ours and consensus expectations, accounting for 98.2% and 96.7%, respectively.

Dividend. DPS of 66 sen was proposed (4Q18: 54 sen). FY19: 108 sen vs FY18: 94 sen. This represents 104.2% payout ratio (FY18: 100.5%).

QoQ. Despite 12.9% higher sales, core PAT declined 11.9% mainly due to higher commercial spending in the quarter linked to pre-Chinese New Year festive activities.

YoY. Core PAT declined 8.9% due to (i) phasing of marketing spend for the launch of Heineken 0.0 and Tiger Crystal and which were launched in July and August 2019, respectively; as well as (ii) higher marketing spend due to earlier occurrence of CNY in the following year.

FY19. Top line of RM2,320.2m represented 14.3% growth (10% after excluding SST impact) from continued robust performance in core brands and new product launches. Supported by better cost efficiencies, core PAT rose 10.9% 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. Furthermore, we are encouraged by Heineken’s venture into the online delivery business ‘Drinkies’ which delivers Heineken products to anywhere within the Klang Valley and Penang within 60 minutes for just a RM8 delivery fee. While we understand the venture will incur marketing spend, we expect it to add to Heineken’s already dominant market share position of the Malaysian market of an estimated 60-65%. Since its launch in FY18, Drinkies has already become the #1 online alcohol delivery platform in Malaysia.

Forecast. Unchanged.

Downgrade to HOLD. At the conclusion of FY19, we roll over our valuation year, resulting in our TP rising from RM28.90 to RM31.00 based on an unchanged DCF valuation methodology (WACC: 7.5%, TG: 2.5%). Despite our higher TP, we downgrade our call from a Buy to a HOLD as we reckon Heineken is fairly valued at current price levels. Note that since our last upgrade to a BUY in Oct-2019, the share price has risen by 29.2%

Source: Hong Leong Investment Bank Research - 24 Feb 2020