• Maintain BUY, with new MYR33.80 TP from MYR30.50, 23% upside and c.6% yield. Heineken’s FY22 results were above our, but met consensus expectations on higher-than-expected sales. Whilst we foresee volume growth to be flattish going forward from the high FY22 base, the premiumisation strategy and normalised effective tax rate (ETR) should propel an 11% earnings growth in FY23F. Valuation discount to peer Carlsberg (c.2x P/E) is unwarranted considering its market leadership in Malaysia, solid earnings delivery, and generous dividend payout.

• Heineken’s FY22 results were above our, but met consensus expectations. Net profit of MYR413m (+68% YoY) accounted for 108% and 102% of our and Street estimates. The positive deviation can be attributed to stronger-than-expected sales momentum. Post-results, we raise our FY23F-24F earnings by 10-11% and introduce FY25F earnings (+5% YoY). Correspondingly, our DDM-derived TP rises to MYR33.80 (inclusive of a 6% ESG premium), which implies 22x P/E, or in line with the valuation ascribed to peer Carlsberg (CAB MK, NEUTRAL, TP: MYR25).

• Results review. YoY, FY22 revenue surged 44% to MYR2.9bn spurred by consumption recovery, more favourable product mix and ASP increases whilst FY22 was a low base affected by plant shutdown. Despite the higher opex on more marketing initiatives and higher ETR in relation to Cukai Makmur, net profit still jumped 68% YoY thanks to the premiumisation strategy and operational efficiency. QoQ, 4Q22 sales climbed 10% to MYR792m, thanks to the year-end seasonality and earlier Lunar New Year timing, breaking the group’s quarterly sales record for the second quarter in a row. That said, 4Q22 PBT shrank 2% to MYR154m on higher marketing spend in respect of the year-end festivities and Lunar New Year. Together with a higher ETR (+1.2ppts), net profit dipped 4% to MYR105m.

• Outlook. Management is expecting a more challenging year ahead in view of the uncertain global economy outlook and elevated inflationary pressure, both of which will have an adverse impact on consumer spending and sentiment. Meanwhile, raw material costs have moderated slightly from the peak, albeit, still higher than pre-pandemic levels, but the price hikes implemented in FY22 should be sufficient to cushion the impact. In order to remain competitive and sustain its earnings growth, we expect Heineken to continue launching engaging marketing campaigns to stimulate spending whilst keeping a tight control on costs to maintain operational efficiency.

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

Source: RHB Research - 27 Feb 2023