HEIM’s 1QFY22 results came above ours/consensus expectations. With the reopening of tourism and leisure activities, we are optimistic of the group’s outlook and thus, bump up FY22E and FY23E earnings by 16% each. With that, we upgrade our call to OUTPERFORM and TP higher to RM27.40.

1QFY22 came above expectations. HEIM registered a PATAMI of RM113.4m which came in above our/consensus expectations, at 40%/41%, respectively. We believe the positive deviation is due to an underestimation of beer sales volume. No dividends were declared, as expected.

YoY, the group’s revenue rose by 27% to RM698.3m thanks to the easing of Covid-19 restrictions and successful commercial executions during Chinese New Year (CNY) which drove up sales in 1QCY22. Price hike in 4QFY21 for certain products and cost- effective promotions also contributed to the jump in revenue. Despite the rise in operating expenses in tandem with rise in revenue, it is noted that the EBITDA margin improved by 4ppt thanks to its cost management initiatives and optimization of marketing spend. All in, the group’s PATAMI rose 54% to RM113.4m which is higher than its pre-pandemic level of RM52.8m (in 1QFY19).

QoQ, revenue improved marginally (+1%) mainly thanks to sales driven by the CNY celebration and the easing of lockdowns. Thanks to improved EBITDA margin and lower depreciation and amortisation (-8%), EBIT margin rose by 4ppt. Courtesy of the improved margin, 1QFY22 core net profit rose by 18% to RM113.4m.

Optimistic outlook. With the nation transitioning into the endemic phase whereby businesses such as the hospitality and food and beverages industries are allowed to resume normal operating hours, the easing of Covid-19 restrictions will be key drivers in speeding up the group’s earnings. Moreover, with the government recently giving entertainment outlets the green light to operate effective from 15 May 2022, this should further help the group recover revenue from their on-trade channels.

Post results, we raise our FY22E/FY23E earnings by 16% each, as we project higher beer sales from the group’s on-trade channels.

Upgrade to OUTPERFORM from MARKET PERFORM with a higher TP of RM27.40 (from RM20.50) based on an unchanged FY23E PER of 21.7x (slightly below -0.25SD of its 5-year mean). Given the rising input costs due to the price volatility of raw and packaging materials, should the group decide to raise prices of certain products, we believe this will not be exceedingly disruptive to beer demand which has proven to be inelastic (e.g. the recent price hike in 4QCY21 did not disrupt the demand for beer). With unchanged excise duties on beers and reopening of the economy and tourism sector, we are optimistic of the group’s outlook.

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

Source: Kenanga Research - 12 May 2022