Heineken Malaysia (HEIM) reported a decent set of 1Q19 results which came within both our and market’s expectations. Earnings increased by 8% yoy, attributable to organic revenue growth of 13% yoy on the back of a successful CNY sales campaign during the quarter. After rolling forward our valuation base, we arrive at a slightly higher TP of RM25.00. Current 2019-21E yields of 4.4%-5.3% remain appealing. Maintain HOLD.

In-line With Expectations

HEIM’s 1Q19 core net profit increased 8.3% to RM52.8m, driven by organic sales growth (ex-SST price adjustment) of 13.3% yoy as the group recorded a successful CNY sales campaign alongside better performances across its key trade channels. The robust sales performance was also partially attributable to some inventory stocking made by retailers ahead of HEIM’s price hike in April, which was done mainly to pass on higher raw material as well as packaging costs. All in, the results were in-line with both our expectations and consensus’, accounting for 17% and 18% of 2019 estimates respectively. We note that Q1 is a seasonally softer quarter for HEIM, due to higher sell-in recognised in Q4 in advance of the CNY festivities.

Volume Sales Momentum Could be Stifled by April’s Price Hike

In tandem with Carlsberg, HEIM’s price hike of 3%-12% could potentially keep a cap on volume sales growth for the remainder of the year, as this marks the brewers’ third domestic price hike within a year. That said, margins would be supported going forward, while we still remain positive on HEIM’s prospects in 2019, which could be bolstered by a decline in the illicit alcohol market due to clampdown efforts by local authorities.

Maintain HOLD With Revised TP of RM25.00

We tweak our 2019-21E EPS estimates by <1% after making some minor bookkeeping changes, and roll forward our valuation horizon to 2020E. Subsequently, we arrive at a revised DCF-derived TP of RM25.00. Current dividend yields range between 4.4%-5.3%. Upside/downside risks: (i) Lower-than-expected volume sales; (ii) improving/deteriorating consumer spending; and (iii) higher/lower-than-expected production costs.

Source: Affin Hwang Research - 24 May 2019