Heineken’s 9M21 core net profit of RM149.8m (+39.7% YoY) was below our and consensus estimates at 59% and 68% of full year estimates. The discrepancy mainly due to lower-than-expected revenue. While 4Q has always been Heineken’s strongest quarter, however, we do not expect its 4Q21 earnings to exceed its usual 4Q’s contribution of c.RM90-100m. We lower our earnings forecasts for FY21-23 by 5-9% as we take into account the lower sales arising from continued closure of nightclubs and pubs. Our TP is subsequently lowered to RM22.50 (WACC: 8.0%, TG: 2.5%), reiterate HOLD.

Below expectations. Heineken’s 3Q21 core net profit of RM 51.0m (+101.9% QoQ, -16.7% YoY) brought 9M21’s sum to RM149.8m (+39.7% YoY). Its performance fell short of both our and consensus expectations, forming only 59% and 68% of full year forecasts. The discrepancy was mainly due to lower-than expected revenue.

Dividend. No dividend was declared for the quarter (3Q20: None). 9M21: 15 sen vs 9M20: none.

QoQ. Revenue grew by 11.6% on the back of higher sales volume, given that business in F&B outlets have slowly recovered starting from September, as the dine-in restrictions for the fully vaccinated were eased. Core net profit also grew in tandem, but at a much higher rate of 101.9%, owing to its effective commercial execution and cost-optimisation efforts (i.e. effective cost management, lower marketing expenses and organisational rightsizing)

YoY. Lower revenue of 17.7% was mainly due to the 1.5 months of operation suspension in its brewery during the quarter, which lasted until 15th August 2021. Note that the brewery was allowed to operate at its normal capacity in 3Q20. Core net profit was 16.7% lower as the falling revenue was partly mitigated by the group’s cost saving initiatives.

YTD. Revenue grew by 3.5% from better revenue management and increased in home consumption as consumers have adapted to the new normal despite lockdowns and movement restrictions were re-imposed. Core net profit was 39.7% higher due to the same reasons mentioned above.

Outlook. We are encouraged by the further relaxation of movement restrictions and the lifting of interstate travel ban as we believe that this could help to support the recovery of F&B sector and on-trade beer volume. While 4Q has historically been Heineken’s strongest quarter, however, we do not expect its 4Q21 performance to exceed its pre-pandemic 4Q earnings contribution of c.RM90-100m, given the lack of foreign tourists and entertainment venues like nightclubs and pubs are still not allowed to resume operations.

Forecast. We lower our earnings forecast by 5-9% as we take into account the lower sales arising from the continued closure of entertainment venues like the nightclubs and pubs.

Maintain HOLD, TP: RM22.50. Following our earnings adjustment, our DCF-derived TP is lowered from RM23.85 to RM22.50 (WACC: 8.0%, TG: 2.5%) reflecting the downward earnings revisions. Maintain our HOLD rating, given the limited upside.

Source: Hong Leong Investment Bank Research - 12 Nov 2021