Heineken’s 1H21 core PAT of RM98.8m (YoY: +114.9%) is in line with our and consensus estimates at 38.8/39.4% of full year forecasts, respectively. We deem this in line as we expect stronger 2H21 earnings (particularly 4Q21) as brewery operations restart and MCO rules begin to be relaxed. Forecasts remain unchanged. We maintain our TP of RM23.85 based on an unchanged DCF valuation methodology (WACC: 8.0%, TG: 2.5%). Our HOLD call is maintained.

In line. 2Q21 core PAT of RM25.3m (QoQ: -65.6%, YoY: –RM11.0 LAT) brought 1H21 sum to RM98.8m (YoY: +114.9%), in line with our/consensus estimates at 38.8/39.4% of full year forecasts, respectively. We deem this in line as we expect stronger 2H21 earnings (particularly = 4Q21) as brewery operations restart and MCO rules begin to be relaxed. Note historically, 2H accounts for 60% of full year earnings, as 4Q is typically a seasonally strong quarter from sales associated with Chinese New Year (CNY) in the following year.

Dividend. 2Q21 DPS of 15 sen going ex on 27 Oct 21 (1H21: 15 sen). None was declared in 2Q20 and 1H20.

QoQ. Revenue declined -36.2% from (i) higher sales in CNY-boosted 1Q21; and (ii) suspension of brewery operations from start-June onwards. In tandem with lower sales, core PAT declined -65.6%.

YoY. Higher revenue (+37.7%) translated into a core PAT of RM25.3m (2Q20 LAT of -RM11.0m). Note that MCO restrictions were at its peak in 2Q20. The better profitability was due to lower marketing spend as well as other cost saving initiatives implemented by the group.

YTD. Revenue was higher by +16.6% from increased in-home consumption as well as effective commercial campaigns and more relaxed MCO rules in 1Q21. Core PAT rose +114.9% in tandem with better sales.

Outlook. Heineken’s outlook remains mixed. On a positive note, (i) dine-in in Phase 1 areas has recently been allowed for fully vaccinated individuals in Malaysia; (ii) Heineken’s brewery operations have resumed from mid-Aug 2021; and (iii) although accounting for >1% of total sales, Heineken’s e-commerce platform is growing strongly (Drinkies e-commerce volumes rose 250% MoM in June-21). However, hurdles remain notably: (i) entertainment venues and bars in Malaysia remain closed; and (ii) Covid-19 cases in Malaysia continue to rise, leading us to believe that consumers may be reticent to return to available on-trade venues for the time being.

Forecast. Unchanged.

Maintain HOLD. TP: RM23.85. We maintain our TP of RM23.85 based on an unchanged DCF valuation methodology (WACC: 8.0%, TG: 2.5%). Our HOLD call is maintained. While we expect 3Q21 earnings to continue to be sluggish as the quarter included 6 weeks of brewery suspension, we expect 4Q21 to be significantly stronger due to seasonality and gradual lifting of MCO restrictions.

Source: Hong Leong Investment Bank Research - 26 Aug 2021