CIMB Research retains Add for Heineken after FY16 earnings exceed forecast

Managing director Hans Essadi said while it remained leery on the external environment, it would continue to strive to achieve solid performance in the next few quarters.

KUALA LUMPUR: CIMB Equities Research is retaining its Add call with a higher target price of RM19.20 for Heineken Malaysia after its earnings for the 12 months ended June 30, 2016 was above expectations.

The research house said on Tuesday the earnings were at 105% of its estimate. This was due to stronger sales volume and better cost efficiencies in 4QFY16.

“While we expect Malaysia’s malt liquor market (MLM) volumes to stay flattish near term, we project Heineken will continue to gain market share through its growing products offering. Its continuous efforts to optimise efficiency through effective marketing and production will allow it to reap low hanging fruits.

“Its dividend yields remain appealing at 5.5%-6.3% for FY17-19F. Risks to our call include weaker than expected MLM volumes,” it said.

CIMB Research said FY16 revenue expanded by 5.5% on-year and earnings by 38.3% on the back of better cost controls and overall increase in sales volume across all brands.

Final dividend per share (DPS) of 35 sen brings total FY16 DPS to 85 sen; DPS quantum higher than expectations but payout ratio in line.

Earnings jumped 24% to RM265.7mil (US$66.4mil) while revenue rose 5.7% to RM1.85bil (US$462.5mil) in the 12 months ended June 30, 2016.

This was due to: i) implementation of cost efficiency initiatives including effective commercial executions, ii) higher sales volume across all brands, and iii) reduction in contraband beer volumes. Accordingly, FY16 EBITDA margins expanded 2.3% pts to 19.1%. 

CIMB Research said overall, FY16 earnings came in above expectations at 105% of its estimate.

The FY16 outperformance was mainly due to stronger-than-expected 4QFY16 results. The revenue rose 15.6% on-year to RM460mil (US$115mil) while earnings jumped 38.3% on-year to RM61mil (US$15.3mil), unanticipated as its 4Q is a seasonally weaker quarter. 

The better-than-expected results were due to: i) full implementation of “Project Breakout”, leading to better cost efficiencies, ii) increased sales volumes due to Euro 2016, and iii) slight gain from the 3-5% price adjustments to pass on the 8-10% hike in excise duties.

CIMB Research attributed the group’s growing efficiencies to various implementations in its operations including a system labeled as “Project Outbreak” which consists of four main components that aim to transform the group into an effective commercial organisation with minimal cost leakages as well improve its overall value chain.

“Given the better-than-expected results, we increase our FY17-18F EPS estimates by 9.1-11.7% to take into account better cost efficiencies and increase in sales volume. We also introduce our FY19 numbers.

“We believe that the group will be able to sustain its strong performance over the next few quarters, led by continuous efficiency improvements and strong sales volume across its product portfolio. Furthermore, the upcoming festivities in the next two quarters should also result in stronger sales volume,” it said.
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