Heineken’s 1HFY21 results came in below expectations due to a worse-than-expected impact of FMCO in June. Moving forward, given the 11 weeks of suspended operations, we slashed FY21E/FY22E earnings by 14%/2% with TP reduced to RM23.90. Reiterate MARKET PERFORM. Below expectations. 6MFY21 PATAMI of RM98m came in below expectations, accounting for 37%/39% of our/consensus estimates. This was a result of worse than expected impact from the unprecedented FMCO that took place in June 2021. DPS of 15.0 sen declared implied a payout of 46% (in line)

YoY, 6MFY21 results were an easy comparison due to the severity of the first lockdown, MCO 1.0 in 2Q20 compared to the lockdowns this year. Top-line was up by 17% to RM897m due to higher sales from in-home consumptions as business and economic activities started to recover and easing of social and economic activities restrictions in 1QFY21. EBITDA margin improved 8ppt to 19% given the optimization of marketing spend and on-going cost initiatives. Given the lower base, PATAMI surged 155% to RM129m (recall that 2QFY20 saw RM18m loss).

QoQ, revenue fell 36% to RM349m on account of higher base seen in 1QFY21 – driven by Chinese New Year sales and the easing of lockdown restrictions. Opex fell 31% in tandem with lower revenue but EBIT margin saw 9ppt decline on account of higher depreciation and import costs.

Near-term volatility remains. Despite near-term challenges, we maintain our view of earnings recovery depending on the success of the vaccinations roll-out by end of 4QCY21. That said, near-term weakness in performance is evident given that restriction on its brewery operations were only lifted in mid-August, dampening third quarter performance. Inconsistent policies with regards to brewery operations might be detrimental in the long run, jeopardizing the Group’s competitiveness and sales.

Post results, we slashed our FY21E/FY22E earnings by 14%/2% and DPS to 75.0 sen/95.0 sen (from 90.0 sen/102.0 sen) respectively.

Reiterate MARKET PERFORM but with a lower TP of RM23.90 (from RM25.15), pegged to FY22E PER of 24x at -0.25SD to its 5-year mean to reflect the near-term challenges ahead. While we are positive on the progress of the national vaccination roll-out, we see the spectre of sin tax ahead coupled with an unfavourable Ringgit undermining raw materials costs. Reiterate MARKET PERFORM.

Risks to our call include: (i) weaker/stronger-than-expected sales volume, and (ii) higher/lower-than-expected operating expenses

Source: Kenanga Research - 26 Aug 2021