Heineken shares oversold following SST implementation

KUALA LUMPUR: Heineken Malaysia Bhd has been oversold following the Sales and Service Tax and looks undervalued at current levels, says Affin Hwang Capital Research.

Over the last three months, the stock has fallen 21% to RM18 at Wednesday's close.

Given the cheap valuation, Affin Hwang upgraded the stock to a buy from hold with a target price of RM21.15, representing a 17.15% upside from its last closing price.

"We trim FY19-20E EPS by -3.5% and -2.9% to reflect short-term impact from the SST-led price hike. 

"However, the stock has been oversold following adverse reaction to the SST hike and looks undervalued at current levels, while offering attractive yields of 5%-6%."

Announcing its 9M18 results yesterday, Heineken's revenue grew 6.5% year-on-year to RM1.37bil while bottom line growth was 3.5% weaker y-o-y on the back of higher commercial spend recorded for festivities in the first half of 2018.

The research house said the results were in line with its expectations but below consensus estimates.

On a sequential basis, the beverage company's performance improved 43.7% during the third quarter due to the strong sales prior to the implementation of the SST as well as a recovery in margins after the 1H18 promotional campaigns.

"4Q performance is seasonally the strongest due to year-end festivities, but could be weaker this time around due to the implementation of SST."

However, Affin Hwang notes that demand for malt liquor is inelastic with past price hikes resulting in short-lived negative impact.