Heineken Malaysia’s 9M22 results beat expectations on stronger-than-expected sales recovery. the view of its current valuation (trading below its 5-year mean) is unwarranted considering the robust consumption on the back of contained contrabands and pricing power to pass on higher costs without deterring its volume thanks to the relatively inelastic demand for beer. RHB prefers the stock for its market leadership and an attractive dividend yield of 5-6%.
Net profit surged 106% to MYR308m which was a better-than-expected forecast on stronger-than-expected sales recovery. Post-results, thus RHB has raised its full yeat earnings forecast by 6-10%.
Margis expanded by 6ppts to 21.3% thanks to price adjustments, better product mix, and prudent cost management. QoQ, 3Q22 revenue rose 12% to MYR721m, a historical high for the group underpinned by further on-trade recovery and price hikes effective August.
On the outlook, the management continues to be cautious in view of the headwinds including a slowdown in global economies, volatile input costs compounded by unfavourable FX as well as the inflationary environment. In order to mitigate the challenges, RHB believes Heineken will intensify its marketing efforts to engage with consumers in order to defend its market share. On top of that, efficiency gain to optimise costs should also be a top priority for the group to maintain profitability, whilst we also expect innovative product launches to entice consumer spending. As we believe the elevated volume will be sustainable and together with the price adjustments and normalisation in effective tax rate or ETR post Cukai Makmur, we forecast FY23 earnings growth of 10%.
Risks to the recommendation include unfavourable regulatory changes and a major loss in market share.
