FY17 NP of RM270.1m (-1%) and full-year dividend of 90.0 sen is within estimates. HEIM’s leading market position is likely to be sustained by its stickier product mix and new premium segment offerings. The 2018 World Cup could potentially boost sales of lower premium offerings. Upgrade to OUTPERFORM with a higher TP of RM23.30 on a revised 20.0x FY19E PER.

FY17 net earnings within expectations. FY17 net profit of RM270.1m is within our/consensus estimates, accounting for 102% and 97% of respective assumptions. The full-year dividend of 90.0 sen is broadly within our 95.0 sen expectation.

YoY, FY17 revenue of RN1.9b grew by 3% (from FY16) from better sales mix and higher volume. Operating margins expanded to 19.0% (+0.4ppt), generating operating profits of RM366.4m (+5%). This is likely due to the above in addition to improved operating efficiencies during the year. However, owing to a higher effective tax rate of 25.6% (+4.3ppt), FY17 saw a slight net profit decline to RM270.1m (-1%).

QoQ, 4Q17 revenue of RM612.7m grew by 20% thanks to new product launches during 3Q17. Healthier operating margins of 20.3% (+1.6ppt) during the quarter is likely due to the high marketing expenses incurred in the last quarter during the launch of the products. Subsequently, 4Q17 net earnings registered at RM93.6m (+42%) after a normalised tax rate.

Steady positioning. New product launches helm industry growth, especially products in the premium segment which are less price- sensitive. We expect the mid-year 2018 World Cup to support the demand of less premium offerings in the group’s portfolio. All-in-all, we believe the group’s market leading position will be sustained by their stickier branding. Efforts for more aggressive marketing could be supported by the cost savings enjoyed by the streamlined operating and cost structure.

Post-results, we enhanced our assumptions for FY18 on the slightly better FY17 results and post-update housekeeping. We also introduce our FY19E numbers.

Upgrade to OUTPERFORM with a higher TP of RM23.30 (from RM19.30, previously). Our target price is based on a revised 20.0x PER as we relook the stock’s 5-year mean PER and roll over our valuation base-year to FY19. The stock is valued above its peer, CARLSBG (OP, TP: RM17.65)’s valuation of 19.0x FY19E PER. We believe this is fair given HEIM’s larger domestic market share and better dividend yields. In addition, CARLSBG is susceptible to wider macro factors due to its regional operations (i.e. Singapore, Sri Lanka).

Risks to our call include: (i) lower-than-expected sales volume, and (ii) poorer sales mix.

Source: Kenanga Research - 15 Feb 2018