Heineken’s FY21 core net profit of RM245.7m (+40% YoY) came in within ours but was above consensus estimates, at 105% and 108% respectively. The commendable set of results was due to Heineken’s efforts in right-sizing the organization and cost base, while at the same time, pushing through effective commercial and marketing campaigns to boost top line recovery. That said, we highlight that its performance has yet to return to pre-Covid levels and we expect gradual recovery to continue. We make no changes to our earnings forecasts, and we maintain our HOLD rating on Heineken with unchanged DCF derived TP of RM22.50 (WACC: 8.0%, TG: 2.5%).

Finishing in line. Heineken’s 4Q21 core net profit of RM95.8m (+88% QoQ, +40% YoY) brought FY21 full year sum to RM245.7m (+40% YoY). The performance was within ours but above consensus estimates, accounting for 105% and 108% of respective full-year forecasts. The commendable results was mainly attributable to Heineken’s efforts in right-sizing the organization and cost base.

Dividend. Declared a DPS of 66 sen (4Q20: 51 sen). FY21: 81 sen vs FY20: 51 sen.

QoQ. Revenue leaped by 78% on the back of stronger sales volume fuelled by festive seasons and the early sell-in for Chinese New Year. The strong revenue growth was also due to low-base effect, as there was an 11-week closure in its brewery in 3Q21, while the brewery was allowed to operate throughout 4Q21. Consequently, core net profit grew but at a higher rate of 88% mainly attributed to the group’s cost management efforts.

YoY. The 33% YoY growth in revenue was mainly driven by an increase in sales volume on the back of easing movement restrictions as well as an early sell-in for Chinese New Year 2022. Higher selling prices for certain products have also led to the stronger revenue as the price adjustment materialized in 4Q21 to compensate for higher input costs. Core net profit was also 40% higher as a result of the stronger top line.

YTD. Despite its brewery being closed for 11-weeks in FY21 (vs 7 weeks in FY20), Heineken’s revenue recorded a 12% YoY growth due to its effective commercial and marketing executions. Coupled with the Heineken’s cost optimization efforts, core net profit registered a 40% growth in FY21.

Outlook. While we are encouraged by the good set of results delivered by Heineken in FY21, however, we highlight that its performance has yet to return to pre-Covid levels. We expect recovery to continue, despite the recent surge in cases, given that the government has indicated that there will be no more lockdowns going forward. That said, the rate of recovery would very much depend on the consumers’ behaviour, as consumers adapt to a new normal and potentially avoid large events and mass gatherings for the time being. In light of the current inflationary pressures, management would also be keeping a close eye on input costs and does not rule out further price adjustments in the future to compensate higher costs, if need be.

Forecast. Unchanged.

Maintain HOLD, TP: RM22.50. We maintain our HOLD rating on Heineken with unchanged DCF-derived TP of RM22.50 (WACC: 8.0%, TG: 2.5%).

Source: Hong Leong Investment Bank Research - 17 Feb 2022