• Maintain BUY with higher MYR29.20 TP, 20% upside and c.5% FY23F yield. Heineken Malaysia’s 1H22 results beat expectations on a stronger- than-expected sales recovery momentum. Current valuation is attractive, trading at below 5-year mean – considering Heineken’s strategic position to capture the consumption recovery and generous dividend payout. We continue to like Heineken for its market leadership in the domestic beer market, strong brand portfolio, and pricing power, which largely insulates it from various inflationary pressures.

• Heineken’s 1H22 results were above expectations. Net profit of MYR200m (+102% YoY) accounted for 62-63% of our and Streets’ estimates on stronger-than-expected sales. Post results, we raise FY22F- 24F earnings by 9%, 5%, and 1%. Correspondingly, our DDM-derived TP rises to MYR29.20 (inclusive of a 6% ESG premium), as we also take opportunity to revise our risks assumptions to factor in the rising rate environment. Our new TP implies 23x P/E FY23F or above the stock’s 5- year mean.

• Results review. YoY, 1H22 revenue surged 50% to MYR1.3bn (29% higher than 1H19, the pre-pandemic base) following the broader reopening of economy which facilitated a strong recovery in on-trade channels, whilst 1H21 is also a low base due to a lockdown disruption. Meanwhile, 1H22 PBT more than doubled to MYR283m – thanks to the sharp surge in topline, a more favourable product mix, price adjustments and prudent cost control. QoQ, 2Q22 revenue moderated by 8% to MYR645m on seasonality as 1Q22 was boosted by Lunar New Year festivity. That, together with a higher marketing spend and ETR, led to a 24% dip in 2Q22 net profit to MYR86m. DPS of 40 sen was declared for 1H22, higher than the 15sen for 1H21.

• Outlook. Management views global supply chain disruptions, rising input costs, weakening MYR, and inflation to be the key challenges going forward after achieving the stellar 1H22 results. That said, we expect the premiumisation strategy, product innovation and effective marketing campaigns to mitigate the headwinds, whilst the implementation of price increases should protect margins. On top of that, we also foresee sustainable volume recovery particularly at the on-trade segments on the back of broader containment of pandemic and economy recovery. These should underpin the 42% earnings growth in FY22 notwithstanding the higher tax expenses arising from Cukai Makmur.

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

Source: RHB Research - 15 Aug 2022