Heineken upgraded to outperform

KUALA LUMPUR: Kenanga Investment Bank Research has upgraded Heineken Malaysia Bhd to outperform with a higher target price of RM23.30 as its FY17 net profit of RM270.1mil and full-year dividend of 90 sen came in within expectations of its 95 sen.

It said on Thursday that its target price was based on a revised 20.0 time price-to-earnings ratio (PER) as we relook the stock’s five-year mean PER and rolled over its valuation base-year to FY19. 

Commenting on the results, it said that on-year, Heineken's FY17 revenue of RM1.9bil grew 3% from better sales mix and higher volume. 

Operating margins expanded to 19% (up 0.4 percentage points) resulting in an operating profit of RM366.4mil, due to improved efficiencies.

However, a higher effective tax rate of 25.6% in the year resulted in a slight decline in net profit to RM270.1mil.

Kenanga Research said that quarter-on-quarter, the 4Q17 revenue of RM612.7mil grew by 20% thanks to new product launches during 3Q17. 

“Healthier operating margins of 20.3% (+1.6 percentage point) during the quarter is likely due to the high marketing expenses incurred in the last quarter during the launch of the products. Subsequently, 4Q17 net earnings registered at RM93.6mil (+42%) after a normalised tax rate,” it said.

Kenanga Research believes that the FIFA World Cup this year will support the demand if less-premium offerings in the group's portfolio.

New product launches helm industry growth, especially products in the premium segment which are less price sensitive.

“We expect the mid-year 2018 World Cup to support the demand of less premium offerings in the group’s portfolio. All-in-all, we believe the group’s market leading position will be sustained by their stickier branding.

"All-in-all, we believe the group’s market leading position will be sustained by their stickier branding. Efforts for more aggressive marketing could be supported by the cost savings enjoyed by the streamlined operating and cost structure,” it said.

Analyst Reports