• Maintain BUY, with new MYR29.60 TP from MYR30, 33% upside and c.6% yield. FY23 results met consensus expectations, but missed our forecast on lower-than-expected sales. We continue to like the brewery sector for the steady demand for beer and continuous operational efficiency gains to mitigate cost inflation. We believe Heineken Malaysia’s current valuation at -1.5SD is unwarranted considering the muted regulatory risks with political stability and largely contained contrabands market. Generous dividend payout ratio will be supported by robust cash flow generation.

• FY23 results were below our expectation, but in line with consensus. Net profit of MYR387m (-6% YoY) accounted for 96% and 100% of our and Street estimates. The negative deviation could be attributed to the lower-than- expected sales. Post results, we trim FY24F-25F earnings by 2-3% and introduce FY26F earnings (+4% YoY). Correspondingly, our DDM-derived TP drops to MYR29.60 (inclusive of a 6% ESG premium), which implies 22x FY24F P/E or at a premium over peer Carlsberg (CAB MK, BUY, TP: MYR22.2). This is justified by HEIM’s market leadership in Malaysia and more generous dividend payout.

• Results review. YoY, FY23 revenue dipped 8% to MYR2.6bn on the back of soft consumer sentiment whilst FY22 was an exceptional base lifted by economy reopening and special Employee Provident Fund or EPF withdrawal. As a result, FY23 PBT fell 14% to MYR511m. That said, net profit decline was milder at 6% thanks to the normalisation of effective tax rate or ETR post expiry of Cukai Makmur. QoQ, 4Q23 revenue and net profit jumped 22% and 14% on favourable seasonality. FY23 DPS totalled at MYR1.28, which represents a 100% payout ratio. (FY22: MYR1.38, 101%).

• Outlook. Management has observed some improvement in consumer sentiment since 4Q23 and this has sustained into FY24F. This is in view of the encouraging Lunar New Year sales momentum. Meanwhile, the premiumisation strategy has continued to gain traction in view of the steady performance of the premium brands. On top of that, rising tourist arrivals should lend further support to consumption growth going forward. On the flipside, management regards the geopolitical tensions as a major risk as further elevation may lead to supply chain disruption and material hikes in input costs.

• Risks to our recommendation include weaker-than-expected consumer sentiment and sharp rise in input costs.

Source: RHB Research - 28 Feb 2024