Review

• Heineken Malaysia Berhad’s (HEIM) 2QFY23 core earnings of RM200.4mn (+0.5% YoY) came in within expectations at 46% and 47% of ours and consensus’ full-year estimates.

• YoY, HEIM’s sales revenue declined by 3% to log at RM1309.5mn, mainly attributed to the high base effect. However, its core net profit grew marginally to RM200.4mn from RM199.5mn in 1HFY22 despite the shortfall in topline, thanks to improving cost efficiency.

• QoQ, the group’s topline, declined by 23% to RM569.2mn in 2QFY23, owing to weakened consumer spending as evidenced by the softening consumer sentiment due to the uncertain global economic landscape. Consequently, HEIM registered lower net earnings of RM90.5mn (versus RM109.9mn in 1QFY23).

• The group declared a first interim dividend of 40.0sen/share in 1HFY23, in line with 1HFY22, translating to a 60.3% payout of 1HFY23 core earnings.

We came away from the analyst briefing post release of 2QFY23 results with the following key takeaways:

1. The lower sales volume in 1HFY23 was expected due to retaliatory consumption in the preceding corresponding period, which view as a form of market correction.

2. Input costs have been relatively stable as of now, and the group leveraged its well-established global supply chain network to mitigate the impact of elevated costs.

3. Continuous marketing and discount mix will spur demand towards brewery products.

4. The company is confident of maintaining its leading brewery position and bringing more positive contributions to the country with the conclusion of Malaysia's political uncertainties post-state election 2023.

Impact

• We tone down our FY23/24/25’s earnings forecasts by 5.9%/2.3%/0.2%, respectively, to reflect the continuous market correction.

Outlook

• HEIM remains cautious about the near-term outlook due to challenging macroeconomic factors that would dampen consumer sentiment. Going forward, the company will focus on improving its operating efficiency to maximize its profitability.

• That said, we anticipate an improvement in the economic conditions during the 2HFY23 following the resolution of political uncertainties post the 2023 state election. There is an expectation that the administration will implement additional stimulus schemes to bolster the country's economy to a greater extent and place it on a more robust trajectory.

Valuation

• Reiterate Buy on Heineken with a calibrated target price of RM31.90/share (from RM31.40/share) based on unchanged DCF variables (k: 7.7%, g: 3.0%).

Source: TA Research - 16 Aug 2023