Heineken has reported a FY22 core net profit of RM412.8m (+68.0% YoY) which came in within our and consensus projections at 105% and 97.8%, respectively. The remarkable 68% YoY growth was mainly driven by the combination of price hikes and stronger on-trade sales. Due to its resilient beer sales performance, we raise our FY23f-24f earnings by 2.0-2.9% by factoring in higher sales volume assumptions. However, HEIM’s TP is lowered to RM30.74 (from RM31.18), as we revised its 5-year mean P/E to 23x (from 24x) after recalibrating its 5-year mean P/E. We reiterate BUY rating on Heineken premised on its strong brand equity and leadership position.

Within expectations. Heineken’s 4Q22 core PAT of RM104.6m (-3.8% QoQ, +9.2% YoY) brought FY22 sum to RM412.8m (+68.0% YoY). The result was within our/consensus expectations, accounting for 105.0% and 97.8%, respectively.

Dividend. Recommended final DPS of 98 sen (4Q21: 66 sen), subject to shareholders’ approval at the upcoming AGM. Should this materialize, FY22 DPS of 138 sen (vs FY21’s 81 sen) implies a payout ratio of 101%.

QoQ. Revenue grew by 9.9% thanks to higher on-trade sales amid the year-end seasonality factor and earlier festive sell-in for CNY. Despite this, EBIT and PBT contracted -1.6% and -1.9%, respectively, due to higher commercial spending incurred for pre-Chinese New Year festive activation. Coupled with a higher tax rate, core PATAMI declined by 3.9%.

YoY. The growth in top line (+14.3%) was mainly driven by the same factors mentioned above. Coupled with higher EBIT margin (+1.5ppts) on the back of 2022 ASP hike, core PAT grew by 9.0%.

YTD. Revenue rose by 60.3% mainly due to stronger sales performance following the reopening of international borders and pent-up demand for out-of-home drinking following the lifting of restrictions. Core PAT grew at a stronger pace to 68.0%, thanks to margin expansion on the back of prices adjustment in 4Q21 and 3Q22, better operating leverage and favourable product mix.

Outlook. While there is a risk of slowdown in beer demand due to inflationary pressures, higher interest rates and softer economic growth in 2023, we expect beer to continue retaining its inelastic properties – after all, it remains one of the cheapest alcoholic drinks on the market. To support our expectation of resilient beer sales volume in 2023, we point to several factors such as (i) the return of beer demand after consumers acclimate to the previous price hikes; (ii) continued recovery in tourist arrivals; and (iii) potential reduction in illicit market share. Specifically, we see the return of foreign tourists as a strong catalyst supporting FY23 beer sales, considering that Malaysia's foreign tourist arrivals thus far are still significantly below pre-pandemic levels. Additionally, we applaud the government's efforts to curb alcohol smuggling in Budget 2023, which is beneficial for brewers whose sales have been undermined by the illicit market.

Forecast. We adjust our FY23f-24f earnings projections upward by 2.0-2.9% as we pencil in higher beer sales assumptions.

Maintain BUY but with a lower TP of RM30.74 based on a lower P/E multiplier of 23x (from 24x) as we recalibrate the 5-year mean. We continue to like HEIM for its strong brand equity and leadership position. Reiterate our BUY rating on Heineken.

Source: Hong Leong Investment Bank Research - 27 Feb 2023