• Maintain BUY, with new TP of MYR30.50 from MYR29.20, 30% upside and c.6% FY23F yield. Heineken Malaysia’s 9M22 results beat expectations on stronger-than-expected sales recovery. We view the current valuation (trading below its 5-year mean) as unwarranted considering the robust consumption on the back of contained contrabands and pricing power to pass on higher costs without deterring its volume thanks to the relatively inelastic demand for beer. We continue to like the stock for its market leadership and attractive dividend yield of 5-6%.

• 9M22 results were above expectations. Net profit of MYR308m (+106% YoY) met 89% of our and consensus forecasts on stronger-than-expected sales recovery. Post-results, we raise FY22F-24F earnings by 6-10%. Correspondingly, our DDM-derived TP rises to MYR30.50 (inclusive of 6% ESG premium), which implies 22x FY23F P/E, or at above the stock’s 5- year mean.

• Results review. YoY, 9M22 sales surged 60% to MYR2.1bn driven by volume recovery, particularly on-trade channels following the broad reopening of the economy, whilst 9M21 was also a low base affected by plant closure and restricted footfall. As a result, 9M22 PBT more than doubled to MYR440m with margin expanding by 6ppts to 21.3% thanks to price adjustments, better product mix and prudent cost management. QoQ, 3Q22 revenue rose 12% to MYR721m, a historical high for the group underpinned by further on-trade recovery and price hikes effective August. Consequently, core net profit jumped 26% to MYR108m.

• To remain solid despite challenges. Management continues to be cautious in view of the headwinds including a slowdown in global economies, volatile input costs compounded by unfavourable FX as well as the inflationary environment. In order to mitigate the challenges, we believe Heineken will intensify its marketing efforts to engage with consumers in order to defend its market share. On top of that, efficiency gain to optimise costs should also be a top priority for the group to maintain profitability, whilst we also expect innovative product launches to entice consumer spending. As we believe the elevated volume will be sustainable and together with the price adjustments and normalisation in effective tax rate or ETR post Cukai Makmur, we forecast FY23 earnings growth of 10%.

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

Source: RHB Research - 9 Nov 2022