Heineken reported a 9M22 core net profit of RM308.2m (+105.7% YoY) which came in above both our and consensus projections at 83% and 88%, respectively. The positive result surprise was due to higher-than-expected beer demand following the transition to endemicity coupled with higher ASP. We raise our earnings forecasts for FY22-24f by 5-6% as we pencil in higher sales volume and ASP assumption to reflect the stronger-than-expected beer demand recovery. Subsequently, our TP is raised to RM31.18 (from RM29.62), implying a PE multiple of 25x on its FY23f EPS of 129.9sen. Reiterate BUY rating on Heineken.

Above expectations. Heineken’s 3Q22 core PAT of RM108.7m (+11.8% QoQ, +84.8% YoY) brought 9M22 sum to RM308.2m (+105.7% YoY). The result beats our and consensus expectations, accounting for 83.4% and 88.5%, respectively. The positive result surprise was due to a higher-than-expected beer demand, higher ASP and better products mix.

Dividend. None declared (3Q21: none). 9M22: 40sen vs 9M21: 15sen.

QoQ. 3Q22 revenue of RM720m was up by 11.8% thanks to higher sales volume and higher ASP. Similarly, EBITDA margin advanced 4.5ppts, but EBIT grew at a lower margin of 2.1ppts due to higher depreciation charge (+106%), given the group’s ongoing plan to expand and upgrade its brewery. All in, core PAT advanced by 26.3% with effective tax rate eased by 1.7ppts.

YoY. Top line surged 84.8% as the result of higher on-trade sales following the lift of restrictions and the reopening of international border. Together with favourable product mix, EBIT margin expanded by 4.5ppts. In turn, core PAT registered a whopping 113.1% growth.

YTD. Revenue rose by 60.3% thanks to stronger sales performance during the 1Q festive period (vs lockdown SPLY) and pent-up demand for out-of-home drinking following the lifting of restrictions. Core PAT grew at a stronger pace to 105.7%, thanks to margin expansion on the back of prices adjustment in 4Q21 and 3Q22, better operating leverage and favourable product mix.

Outlook. Heading into 4Q22, we are optimistic that Heineken will post another round of commendable earnings driven by (i) price hike; (ii) seasonally strong foreign tourist arrivals; and (iii) the 2022 FIFA World Cup. Despite lingering concern on demand slowing down following HEIM raising beer prices by 6-8% (both off-trade and on-trade) effective on 1 Aug in response to the rising input cost, we are not overly concerned as beer remains the cheapest alcoholic drink in the market, and thus relatively inelastic demand. Separately, we applaud the government initiatives on curbing alcohol smuggling activities in Budget 2023, which is a boon to brewers whose sales have been cannibalized by the illicit drinks.

Forecast. We adjust our FY22-24f earnings projections upward by 5-6% as we pencil in higher beer sales and ASP assumption to reflect stronger-than-expected beer demand and the 3Q22’s price hike.

Maintain BUY, TP: RM31.18. Post earnings adjustment, TP is raised to RM31.18 (from RM29.62), implying a PE multiple of 25x on its FY23f EPS of 129.9sen. We continue to like HEIM for its strong brand equity, leadership position and inexpensive valuation. Reiterate our BUY rating on Heineken.

Source: Hong Leong Investment Bank Research - 9 Nov 2022