Heineken Malaysia (HEIM) reported a decent set of results for 6M19 which was deemed within both our and market’s expectations. Core net profit increased 14% yoy, attributable to organic revenue growth of 14% yoy whereby volume sales continued to grow across its core brands. We make no changes to our earnings forecasts, but upgrade HEIM to a BUY following the recent share-price retracement, with an unchanged DCF-derived TP of RM25.00. 2019-21E yields also appear decent at 4.6%-5.5%.

Within Expectations

HEIM’s 6M19 core net profit grew 14% yoy to RM118.5m, driven by organic sales growth (ex-SST adjustment) of 14% yoy while partially tempered by lower EBIT margins (-1.2 ppt yoy), mainly due to higher commercial spend, and in turn offset by lower taxation rates. Volumes sales growth over the period was underpinned by stronger demand for its core products (Tiger, Heineken). Overall, the results were in line with our and market’s expectations, accounting for 38% and 39% of full-year estimates respectively. 2H19 should be seasonally stronger (historically 59-65% of full-year earnings) owing to higher sales ahead of year-end festivities as well as for the following Lunar New Year. A higher DPS of 42sen was announced (2Q18: 40sen).

Sequentially Stronger

2Q19 earnings were stronger by 24% qoq as A&P expenses moderated, although we note that the group has launched its “Heineken® 0.0” nonalcoholic brew during the quarter which caters to a growing trend around moderate alcohol consumption. While we do not expect Heineken® 0.0 to carve out a significant portion from the malt liquor market, we are positive on HEIM’s 3Q19 launch of the lighter-tasting “Tiger Crystal” variant which we gather to have gained good reception across Asian markets.

Upgrade to BUY

With the results largely in line, we leave our earnings estimates unchanged. As the stock looks attractive at current levels, we upgrade HEIM to a BUY (from Hold) based on an unchanged DCF-derived TP of RM25.00. 2019-21E dividend yields remain appealing, ranging between 4.6%-5.5%. Downside risks: (i) lower-than-expected volume sales; (ii) deteriorating consumer spending; and (iii) lower-than-expected commercial expenses.

Source: Affin Hwang Research - 21 Aug 2019