Affin Hwang Research retains Hold for Heineken

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: Affin Hwang Capital Research is maintaining its Hold call for Heineken with an unchanged target price of RM18.15. 

It said on Thursday the brewer’s 4%-6% earnings growth in FY18-19E is underpinned by Heineken’s increasing product portfolio to cater to different consumer tastes. 

“We still like Heineken as we believe it will continue to maintain its dominant position in the domestic malt liquor market because of its strong brand portfolio and solid brand name. 

“Estimated dividend yields of 4.6-5.0% over next three years are attractive,” it said. 

Affin Hwang Research said the key downside risks include increasing rivalry from competitors and contraband beers, lower -than-expected sales volume growth and higher-than-expected operating expenditure. 

Key upside risks include lower-than-expected sales volume growth and lower-than-expected operating expenditure.

Heineken’s 2Q17 revenue fell 11.5% on-year to RM406.6mil due to the high base in 2Q16.

Note that revenue increased by 15.6% on-year 2Q16, driven by the anticipated price increase from July 1, 2016. 

Affin Hwang Research said nonetheless, 2Q17 core net profit increased by 1.2% on-year to RM 61.6mil compared to the same period last year as savings in fixed overheads and cost efficiencies helped mitigate the lower revenue. 

“This was seen through the improvement in earnings before interest, tax, depreciation and amortisation (Ebitda) margin by 3.1 percentage points on-year to 23.0%. 

“We believe earnings are in line with our and street expectations, accounting for 40% and 38% of full-year forecasts respectively, on expectation of a stronger 2H17 performance. Heineken declared a DPS of 40 sen in 2Q17 (versus 35 sen in 2Q16).  

“Given the impact of soft market sentiment, Heineken continues to concentrate on growing the high-margin premium brands segment such as Heineken and Guinness. 

“The management cited that Strongbow Apple Ciders and the launch of Guinness Bright in May had helped to negate the slowdown in revenue growth for its other products. 

“The cider category delivered double-digit growth in 1H17. We believe that Heineken will continue to innovate with new product launches to meet rising consumer demand,” Affin Hwang Research said.
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