This article first appeared in The Edge Financial Daily on May 15, 2018 - May 21, 2018

Heineken Malaysia Bhd
(May 14, RM22.50)
Maintain hold with an unchanged target price of RM20.75: Heineken Malaysia Bhd recorded a 10.5% year-on-year (y-o-y) growth in its revenue for first quarter of financial year 2018 (1QFY18) to RM433.8 million, driven by higher sales volume from effective execution of commercial campaigns for the festive period. We believe the growth was also attributable to the launch of new brands such as Tiger Radler and Apple Fox Cider in second half of FY17 that helped improve product mix. Nevertheless, net profit declined marginally by 0.4% y-o-y to RM48.9 million, mainly due to higher promotion costs and timing differences of commercial expenses. Also, its trade partners delayed purchases to early April 2018 in anticipation of an announced price adjustment. Earnings were in line with our and street’s expectations, accounting for 17% of FY18 estimates (historically, the March quarter accounts for 16% to 18% of full-year results).

Heinekan claimed a successful festive-season campaign, resulting in a higher market share in 1QFY18. We expect it to continue to grow higher-margin premium brands and extend its current portfolio to increase its addressable market. With a quarter-on-quarter improvement of 8.4 percentage points in Malaysian Institute of Economic Research Consumer Sentiment Index to 91 in 1QFY18, Heineken Malaysia sees strengthening of consumer sentiment as a positive trend for FY18. Coupled with cost-saving initiatives, it is cautiously optimistic about delivering a commendable performance this year.

Our 8.4% earnings growth estimate for FY18 is underpinned by a better volume growth of 4% and an improvement in product mix. We still like Heineken Malaysia for its strong brand portfolio, but we think that it is fairly valued now. Estimated dividend yield of 4.6%-5.3% over the next three years is attractive.

Key downside risks include increasing rivalry from competitors and contraband beers, lower-than-expected sales volume growth, and higher-than-expected operating expenditure. — Affin Hwang Investment Bank Bhd, May 14