FY18 net profit of RM282.5m (+5% YoY) and full-year dividend of 94.0 sen are within expectations. The group held on to its market-leading position, which would allow them to stay relevant amidst potential changes in consumer behaviour. Plans to expand capabilities could translate favourably in the long term. Maintain MARKET PERFORM with a higher TP of RM21.90 (from RM18.60) mainly on adoption of higher PER multiple due to its resiliency.

FY18 within expectations. HEIM’s FY18 net profit of RM282.5m came within our/consensus estimates, making up 103%/102% of respective fullyear expectations. A final dividend of 54.0 sen was declared, leading to a total FY18 payment of 94.0 sen. We also deem this to be within our earlier anticipated 90.0 sen, which is close to 100% payout ratio.

YoY, 12M18’s stronger turnover of RM2.03b (+8%) could be attributed to higher sales volume in the off-trade segment, likely derived from less premium brands. The increase in volume could also be driven by the forward buying pre-price hikes in 2018 (i.e. first in April 2018, second in September 2018 from SST). Group operating profit only grew by 5% possibly from the abovementioned poorer product mix and higher marketing spend (EBIT margin registered at 18.9%, -0.6ppt). This then translated to 12M18 net earnings of RM282.5m (+5%).

QoQ, 4Q18 sales expanded by 29% to RM662m, boosted by year-end and CNY festivities. Possibly thanks to more efficient marketing strategies and product mix, operating profit grew by 48% with better margin at 22.0% (+2.8ppt). However, due to a higher effective tax rate of 31.2% (+11.9ppt), 4Q18 net profit only increased by 27% to RM100.0m.

Holding steady. HEIM continues to hold ground as the market leader in the domestic scene. Keeping a balanced portfolio between its premium and less premium offerings, the group is positioned well to capitalise on any shifts in market appetite assuming consumers sought to down-trade to more affordable offerings. Additionally, this could provide the group some supports against any potential softness from the on-trade segment, which prices are increased on both sales tax and service tax. While the group is on guard against unfavourable movements in input costs, plans to expand its capabilities to improve overall efficiency and economies of scale could bring about savings in cost.

Post-results, we tweak our FY19E net earnings by 2.3% as we incorporate FY18 results. Additionally, we introduce our FY20E numbers.

Maintain MARKET PERFORM but with a higher TP of RM21.90 (from RM18.60). We ascribe a higher valuation of 23.0x FY19E PER (from 20.0x FY19E PER), which is close to the stock’s +1SD over its 3-year mean. Due to being perceived as a resilient sector against SST price pressures, there appears to be growing market attention towards brewers. Additionally, HEIM still looks to command decent yields of above 4%, in contrast to an average of 2% amongst large cap F&B players which are also viewed as safe haven options. Risks to our call include: (i) stronger/weaker-than-expected sales volume, (ii) more/less favourable sales mix, and (iii) more/less favourable cost factors.

Source: Kenanga Research - 21 Feb 2019