PETALING JAYA: A growing shift from on-trade to off-trade and the focus on premium brands offering higher margins will be key drivers for Heineken Malaysia Bhd to sustain earnings growth, according to analysts.
The RM5bil market-value company that continued to deliver healthy performance for the quarter ended Dec 31, 2016, told analysts on Wednesday that it would continue to extend premium brands such as Heineken and Guinness and other variations of Tiger White, Anchor and Strongbow cider to consumers since these brands gave better margins.
Affin Hwang Capital kept a “buy” call and target price of RM17.92 on the stock, stating that Heineken’s overall calendar year 2016 earnings of RM273.3mil was 9% above forecasts of RM250mil.
“This is due to the Chinese New Year celebrations that came in earlier this time and lower tax rate in December quarter.
“The higher revenue growth was because of continued volume growth for premium brands (Heineken and Guinness) and robust growth in the off-trade segment such as supermarkets,” Affin Hwang said, adding that the lower tax rate was grounds for the brewer’s 3.7% year-on-year (y-o-y) growth in pre-tax profit and 15.2% y-o-y growth in net profit.
While Affin made no changes to its forecasts and liked Heineken for its dividend yield at 5.2% to 5.7%, it believes the brewer will continue to maintain the dominant position in the malt liquor market, but faced stiff competition from rivals and contraband beers.
Hong Leong Investment Bank (HLIB) also maintained a “buy” rating, but revised its target price to RM18.15 from RM18.52 previously.
“The rise of contraband beers still remains an issue on the backdrop of a soft consumer sentiment.
“The modern off-trade segment continues to be key growth channel and the shift from on-trade to off-trade has benefitted the brewer,” HLIB noted.
Going forward, HLIB expects the company to leverage on Heineken’s global procurement.
“We expect slower two upcoming quarters on the back of a dry festive period.
“Other risks include overhang of the RM56mil customs bill and penalties in arreas and prolonged soft consumer sentiment,” said HLIB, adding that it liked Heineken for dividend play, greater market share and resilient earnings.
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