• Maintain BUY, with new TP of MYR28.50 from MYR25.80, 22% upside and c.5% yield. Heineken Malaysia surprised on the upside with record 1Q22 earnings from a sharper-than-expected consumption recovery. We believe the positive momentum will sustain going forward considering the ongoing economic recovery, reopening of international borders and entertainment outlets resuming operations. We continue to like the group as a proxy for consumption recovery and we believe its current valuation has not fully priced in the recovery prospects yet.

• 1Q22 results were above expectations. Net profit of MYR113m (+54% YoY) accounted for 40% and 42% of our and consensus forecasts on the back of sharper-than-expected recovery in consumption. Post-results, we raise FY22F-24F earnings by 12%, 6% and 4%. Correspondingly, our DDM- derived TP rises to MYR28.50 (inclusive of a 6% ESG premium), which implies 25x P/E (ex-Cukai Makmur) FY22F, or slightly above the stock’s 5- year mean. The valuation is in line with the one we ascribed to peer Carlsberg (CAB MK, NEUTRAL, TP: MYR23.80).

• Results review. YoY, 1Q22 sales surged 28% to an all-time high of MYR698 thanks to the volume recovery on the back of easing movement restrictions and an ASP hike. That, together with prudent cost control, propelled a 60% leap in 1Q22 PBT to MYR155m with margin expanding 4.6 ppts to 22.2%. Meanwhile, ETR spiked to 26.9%, reflecting the Cukai Makmur impact. Sequentially, 1Q22 revenue was flattish QoQ (+1%) as the robust momentum from 4Q21 sustained thanks to the Lunar New Year festivities and full impact of the ASP hike. That said, 1Q22 PBT was 25% higher QoQ likely due to the swing in marketing spending between the quarters.

• Broader reopening to further support consumption recovery. Seemingly, the ASP hike has not deterred volume significantly considering the inelastic demand for beer whilst the ongoing economic recovery and pent up demand should have also helped. Looking ahead, we expect the encouraging momentum to be sustainable taking into account the reopening of international borders to facilitate foreign tourist arrivals whilst entertainment outlets resuming operations from 15 May should further aid volume recovery. That said, the elevated margin in 1Q22 could taper off going forward as the group may restart some of its brand-building marketing campaigns in order to spur consumer spending and strengthen market share.

• Risks to our recommendation include unfavourable regulatory changes and major loss in market share.

Source: RHB Research - 12 May 2022