Heineken Malaysia (HEIM) started off 2018 with flattish yoy growth in core earnings of RM48.9m. While 1Q18 top line growth was strong at 10.5% yoy, it was offset by higher expenses during the quarter. The results were broadly in line with our and consensus expectations, accounting for 17% of full year estimates respectively. In light of an improvement in consumer sentiment and potential volume growth driven by the World Cup, we expect HEIM to deliver stronger earnings growth in 2018. However, we believe that the positive outlook has been priced in. Maintain HOLD with unchanged TP of RM20.75

1Q18 Earnings in Line

HEIM recorded a 10.5% yoy growth in 1Q18 revenue to RM433.8m, driven by higher sales volume from effective execution of commercial campaigns for the festive period. We believe the growth was also attributable to the launch of new brands such as Tiger Radler and Apple Fox Cider in 2H17 that helped to improve product mix. Nevertheless, net profit declined marginally by 0.4% yoy to RM48.9m, mainly due to higher promotion costs and timing differences of commercial expenses. Also, its trade partners delayed purchases to early April in 2018 in anticipation of an announced price adjustment. Earnings were in line with our and street expectations, accounting for 17% of FY18E estimates (historically, the March quarter has accounted for 16-18% of full-year results).

Cautiously Optimistic on 2018 Outlook

HEIM claimed a successful festive season campaign resulting in higher market share in 1Q18. We expect it to continue to grow higher-margin premium brands and extend its current portfolio to increase its addressable market. With 8.4 ppts qoq improvement in MIER Consumer Sentiment Index to 91 in 1Q18, HEIM sees strengthening of consumer sentiment as a positive trend for 2018. Coupled with cost saving initiatives, it is cautiously optimistic in delivering a commendable performance this year.

Maintain HOLD and Unchanged Target Price of RM20.75

We maintain our earnings forecasts. Our 8.4% earnings growth in FY18E is underpinned by better volume growth of 4% and improvement of product mix. We still like HEIM for its strong brand portfolio, but we think that it is fairly valued now. Estimated dividend yields of 4.6%-5.3% over next 3 years is attractive. Maintain our TP at RM20.75 and HOLD recommendation.

Key downside risks include increasing rivalry from competitors and contraband beers, lower -than-expected sales volume growth and higher-than-expected operating expenditure.

Source: Affin Hwang Research - 14 May 2018