Heineken’s 1Q21 core PAT of RM73.5m (QoQ: +7.6%, YoY: +29.1%) is in line with our and consensus estimates, at 27.0% and 28.2% of full year forecasts, respectively. We expect the recently implemented MCO restrictions to impact sales to Heineken’s on-trade channels (restaurants, hotels etc.) and hence, result in sluggish 2Q21 sales. Post-annual report updates, our FY21/22 forecasts are adjusted downwards by -0.8%/0.2%. However, after rolling over valuation year, our TP is raised from RM22.25 to RM24.00, based on DCF valuation methodology (based on unchanged WACC: 8.0%, TG: 2.5%). Our HOLD call is maintained.

In line. 1Q21 core PAT of RM73.5m (QoQ: +7.6%, YoY: +29.1%) is in line with our and consensus estimates, at 27.0% and 28.2% of full year forecasts, respectively. We deem this in line as we expect 2Q21 earnings to be weaker due to the recent implementation of MCO restrictions.

Dividend. None Declared (1Q20: None).

QoQ. Sales rose +5.5% driven by Chinese New Year sales and easing restrictions in Mar-21. Coupled with effective cost management, higher revenues led to core PAT rising by 7.6%.

YoY. Revenue grew +6.2% due to adaptation by businesses to the new normal and effective execution of campaigns. The improved sales were also attributed to the first MCO in 1Q20 which required Heineken to suspend their operations from 18 Mar 2020 onwards. In addition to effective cost controls and subdued commercial activities, higher sales resulted in core PAT rising +29.1%.

Outlook. We expect the recently implemented MCO restrictions to impact sales to Heineken’s on-trade channels (restaurants, hotels etc.) and hence, result in sluggish 2Q21 sales. Heineken will continue to grow their in-house e-commerce platforms ‘Drinkies’, which allows users to get Heineken products delivered. In the pandemic landscape, online orders volumes nearly doubled (+93%) while sales grew by +208% 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 normalize drinking consumption.

Forecast. Post-annual report updates to model, our FY21/22 forecasts are adjusted downwards by -0.8%/-0.2%, respectively.

Maintain HOLD. TP: RM24.00. After rolling over valuation year, our TP is raised from RM22.25 to RM24.00, based on DCF valuation methodology (based on unchanged WACC: 8.0%, TG: 2.5%). Our HOLD call is maintained. While we expect sluggish earnings in 2Q21 from MCO restrictions, we reckon Heineken is fairly valued at current price levels, with FY21/22 forecasted yields of 3.6%/4.1%, which is decent in the current low interest rate environment.

Source: Hong Leong Investment Bank Research - 27 May 2021