Heineken’s FY20 core PAT of RM175.6m (YoY: -51.7%) was in line with ours (102.7%) but above consensus (109.5%) full year forecast. As results were within expectations, our forecasts remain unchanged. After rolling over our valuation year, our TP is raised to RM22.25 from RM20.45 previously, based on an unchanged DCF valuation methodology (WACC: 8.0%, TG: 2.5%). Our HOLD call is maintained.

In line. 4Q20 core PAT of RM68.4m (QoQ: +11.6%, YoY: -25.0%) brought the FY20 sum to RM175.6m (YoY: -51.7%). This is in line with ours (102.7%) but above consensus (109.5%) full year forecast. FY20 Core PAT figure of RM175.6m was arrived at after adjusting for one-off exceptional items of RM21.4m; settlement of Customs’ Bills of Demand of RM7.2m (2Q20) and RM14.2m (4Q20) restructuring expense.

Dividend. 4Q20: 51 sen proposed. FY20: 51 sen (FY19: 108 sen per share). This represents 100% of Heineken’s full-year FY20 reported EPS.

QoQ. Despite the transition from RMCO to CMCO2.0, revenue still managed to rise by +9.6% due to seasonally stronger sales from festive season as well as retailers stocking up on inventory in preparation for Chinese New Year in 1Q21. Core PAT rose +11.6% in tandem with higher sales.

YoY. Core PAT declined -25.0% in line with revenue decline of -23.7% which was due to continued closure of drinking venues that do not have restaurant licences (clubs, karaoke venues etc.) and impact on on-trade sales due to the reimplementation of CMCO in 4Q20.

YTD. Heineken shared that while consumption in FY20 shifted to off-trade (supermarkets, convenience stores, e-commerce), it was insufficient to make up for loss in volumes from the on-trade channel (restaurants, bars) (Figure #2). Volume decrease of 20-25% was due to suspension of operations of close to two months in addition to various MCO restrictions on on-trade sales channels. In addition to this, overall prices were lower in FY20, with revenue/HL decreasing -3.2%. Despite cut in commercial spending, core PAT (-43.9%) fell by a higher quantum than sales (-24.0%). This was due to fixed cost component during operational shut down in early FY20 and various spending initiatives aimed at keeping business partners (restaurants, coffee shops, bars etc.) afloat during this turbulent time.

Outlook. We note that Heineken have launched an app for their in-house e-commerce platform ‘Drinkies’. In FY20, order volumes nearly doubled (+93%) while sales grew by 208%. While we are positive on this venture in the long run, we understand e commerce are still in its nascent stage, accounting for under 1% of total sales in FY20. Going forward, Heineken’s earnings will be greatly reliant on Malaysia’s ability to keep the spread of Covid-19 under control and roll out vaccines quickly, which would result in return to normal drinking behaviour. While we opine the worst is over for Heineken with the loosening of MCO rules, certain drinking venues (clubs, karaoke venues) remain shut. As such, we expect volumes to remain below FY19 levels for the foreseeable future.

Forecast. As results were within expectations, our forecasts remain unchanged.

Maintain HOLD. TP: RM22.25. After rolling over our valuation year, our TP is raised to RM22.25 from RM20.45 previously, based on an unchanged DCF valuation methodology (WACC: 8.0%, TG: 2.5%). Our HOLD call is maintained.

Source: Hong Leong Investment Bank Research - 19 Feb 2021