HEIM’s FY22 results met expectations. The brewer continued to benefit from the economy reopening with its premium brands showing strong performance. We raise our FY23F earnings by 7%, lift our TP by the same quantum to RM27.70 (from RM25.80) and maintain our MARKET PERFORM call.

Beat our forecasts. HEIM’s FY22 results met expectations. The 4QFY22 dividend declared of 98.0 sen brings the total to RM1.38 for the full-year, beating our projection of RM1.30.

YoY, revenue grew 44.2% as its sales volume recovered with a better product mix. In its statement, parent Heineken N.V. indicated that sales volume grew “in the high thirties” in Malaysia and that “the premium portfolio outperformed, led by Heineken”. Its revenue also benefitted from the price hike during 3QFY22 and backed by better economies of scale, net profit surged 68%.

QoQ, revenue grew 10%, largely due to seasonal factors as consumers buy ahead of the holiday season. However, net profits fell 3.8% on higher marketing expenses4QFY22 in preparation for an early 2023 Chinese New Year.

The key takeaways from HEIM’s analyst briefing are as follows:

1. The group sees rising inflation and recessionary fears as key challenges in 2023. In addition, it still regards volatility in input costs as a key earnings risk (given the heightened geopolitical tension in the world currently). The saving grace is that a part of procurement is handled by its parent company’s global network. While this will not completely shield against the volatility in food commodity prices, it does provide some buffer against wild price swings.

2. It intends to plough back savings from manufacturing operations to beef up its marketing activities. It disclosed that there had been an increase in its marketing expenses even during FY22 by virtue of marketing spending being pegged as a percentage of revenue (and revenue grew in FY22).

3. The group has completed a large part of its brewery upgrades and booked in RM199m capex during FY22. It guided for capex to come off in FY23 barring unplanned new projects.

4. The group has not committed itself to an explicit dividend policy (although it paid out 100% in FY22), It said that the payout depends on its cash position (which may fluctuate from time to time).

We raise our FY23F earnings by 7% largely to reflect better premiumisation, and hence margins. We also introduce our FY24 numbers. Correspondingly, we lift our TP by 7% from RM25.80 to RM27.70 based on an unchanged FY23F PER of 21x, consistent with the industry’s historical average 1-year forward PER. We also impute a 5% discount based on a 2-star ESG rating as appraised by us (see Page 4).

We continue to like HEIM for: (i) its resilient demand despite sustained high inflation, (ii) its ability to defend margins with a product mix that is skewed more toward premium brands, and (iii) a decent dividend yield of >5%. However, we remain wary of the stigma of its products being socially undesirable amidst a rising ESG trend. Maintain MARKET PERFORM.

Risks to our call include: (i) more restrictions on the sales of alcoholic products, (ii) higher taxes on alcoholic products, (iii) illicit trade eating into legalised market; and (iv) rising input costs.

Source: Kenanga Research - 27 Feb 2023