15M16 net profit of RM322.6m (+16.3%) met our expectation (124%). No DPS was declared as expected. No changes to earnings forecasts. Moving forward, HEIM’s market leading position and commitment in brand-building initiative will continue to propel growth in the longer run while the expiry of anti-profiteering mechanism may benefit the company in view of its dominant market share and sticky demand of products. Maintain OUTPERFORM with unchanged TP of RM18.48.

Results within expectation. 15M16 net profit of RM322.6m (+16.3% YoY) was within expectation by matching 124% of our in-house forecast. No dividend was declared, as expected.

YoY, 15M16 revenue inched up marginally by 3.7% to RM2.2b attributable to resilient volume growth and favourable product mix. 15M16 operating profit grew by 12.7% to RM427.9m thanks to the healthy top line growth while the operating margin expanded by 1.6ppt to 19.2% which we think was driven by the better product mix and effective cost management in marketing spending. As a result, 15M16 net profit surged 16.3% to RM322.6m, further aided by lower effective tax rate of 24.4% (from 26.4%).

QoQ, 5Q16 revenue fell 16.3% to RM384.8m on seasonality due to the absence of festivities or major events during the quarter while in comparison 4Q16 was boosted by the football event of Euro 2016, which lasted a period of one month. However, the operating profit only declined by 6.0% to RM75.0m which is attributable to recognition timing of marketing spending as heavy investment was poured in during 4Q16 in conjunction with Euro 2016 event. As a result, 5Q16 net profit fell 6.5% to RM56.9m.

Still positive despite end of run. Despite 5Q16 marking the end of the Group’s gallant run during which eighth consecutive quarters of YoY growth were recorded, we are not overly concerned on the slower growth in a single quarter as we believe HEIM’s market leading position and commitment in brand-building initiative will continue to propel the growth in the longer run. 6Q16 earnings should improve on the back of year-end holidays and the event of Oktoberfest. While the Group has not indicated its pricing strategy with the expiry of anti-profiteering mechanism come 31st Dec 2016, we believe HEIM is in good position to capitalise judging on its market-leading position and sticky demand of its products. As such, we are maintaining our positive stance on the company.

Earnings forecast kept unchanged. We make no changes to our earnings forecasts.

Maintain OUTPERFORM with unchanged Target Price of RM18.48. Our TP is based on unchanged FY17E PER of 19.6x, which is on par with its 5-year mean PER. While the earnings growth is expected to be slower relatively from the high base after a series of encouraging results, the expiry of anti-profiteering mechanism may provide another angle for investors to aim for. On top of that, we think that the valuation is not excessive with the added bonus of decent dividend yields of c.5%. HEIM remained as our pick of the sector as we like its market-leading position backed by strong portfolio of brands.

Source: Kenanga Research - 21 Oct 2016