Review

• Heineken Malaysia Berhad’s (Heineken) 2QFY24 core earnings of RM91.1mn (+0.7% YoY) came in within expectations. Although revenue remained flat (-0.7% YoY), the improvement in earnings was largely attributed to effective cost management, as operating expenses decreased by 1.4% YoY to RM444.1mn. The slight dip in sales was due to weaker consumer sentiment.

• On a QoQ basis, 2QFY24 core net profit fell by 25.6%, in tandem with a 28.3% decline in revenue to RM565.5mn. The weaker QoQ performance was primarily due to higher revenue in 1QFY24, which was boosted by Chinese New Year festive sales.

• Cumulatively, 1HFY24 core earnings increased by 6.6% YoY to RM213.6mn, accounting for 51% of our full-year forecast and 53% of consensus estimates. This increase in earnings was driven by cost efficiencies and the effective implementation of strategic commercial initiatives, including the Chinese New Year campaign in 1QFY24.

• The group declared a single tier interim dividend of 40.0sen/share for the quarter under review, which is consistent with 2QFY23. This translates to a 56.6% payout ratio of 1HFY24 earnings.

Impact

• We are maintaining our FY24-26 earnings projections.

Outlook

• To recap, Heineken implemented a price adjustment for selected products in April 2024 to address higher input costs. The previous increase in beer prices occurred in July 2022, when prices rose by approximately 8% to 10%. Despite this recent adjustment, we expect consumer demand to remain resilient.

• Overall, we believe that 2HFY24 performance will remain robust, supported by higher on-trade sales, price revisions, and increased international tourist arrivals

Valuation

• Factoring in an ESG premium of +3%, we have assigned a new TP of RM28.02/share (k: 8.0%, g: 3.0%) based on DCF valuation. Reiterate Buy on Heineken.

Source: TA Research - 8 Aug 2024