• Stay BUY and MYR29.60 TP, 25% upside and c.6% yield. Heineken Malaysia’s 1Q24 results were broadly in line, underpinned by robust festive demand. The premiumisation strategy and price increase are likely to support profit margin, thereby offering earnings visibility notwithstanding subdued consumer sentiment on the back of heightened inflationary pressures. With that, we believe its current valuation is undemanding, considering the diminished regulatory risks with the political stability and generous dividend payout.

• 1Q24 results were broadly within expectations. Net profit of MYR123m (+11% YoY) accounted for 30% and 29% of our and consensus forecasts, which is in line with the historical seasonal patterns. Post-results, we make no changes to our earnings forecasts and DDM-derived TP of MYR29.60 (inclusive of a 6% ESG premium), which implies 22x FY24F P/E or at a premium over peer Carlsberg Brewery (CAB MK, BUY, TP: MYR22.20). This is justified by Heineken’s market leadership in Malaysia and more generous dividend payout.

• Results review. YoY, 1Q24 revenue climbed 7% to MYR789m, which Heineken attributed to its effective execution of the Lunar New Year campaign and strategic commercial initiatives. That said, we believe the timing of the Lunar New Year in 2024 and front loading before the price increase in April may have also aided topline growth. Correspondingly, 1Q24 PBT jumped 12% to MYR161m with margin expanding 0.9ppts to 20.4% thanks to the sales growth and strict cost control. QoQ, 1Q24 revenue and net profit were 8% and 24% higher mainly boosted by the Lunar New Year festivities.

• Outlook. As we understand that there was a price increase effective April, volume may see adjustments in 2Q24F assuming a pre-price increase front loading has boosted the 1Q24 numbers. Looking further ahead, we are of the view that the company will remain focused on enhancing the premium portfolio and driving operation efficiency. We believe these are effective measures to mitigate the soft market environment where consumer sentiment is cautious on the back of inflationary pressures. That said, downside to consumption will likely be cushioned by the less elastic demand for beer and effective clampdown on contrabands. In addition, the recovery in tourist arrivals should bode well for brewery players.

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

Source: RHB Research - 15 May 2024