PETALING JAYA: Heineken Malaysia Bhd’s earnings is expected to increase sequentially in the fourth quarter (4Q) of 2023, helped by year-end seasonality.
The earnings improvement will likely extend into the financial year ending Dec 31, 2024 (FY24), as sales grows in tandem with a more premium product mix.
As such, most analysts remain optimistic about the prospects of the brewery company over the medium term.
RHB Research, which reiterated “buy” on Heineken, said the company should see a quarter-on-quarter earnings uptick in 4Q23 on better seasonality, while the year-on-year (y-o-y) comparison could be aided by the later timing of the Lunar New Year in 2024.
“This could lead to a relatively lower loading of marketing expenses, if a part of these were to be charged or spread out to 1Q24. Beyond the immediate term, we expect steady 2024 top line growth, supported by a more premium product mix,” the brokerage explained.
RHB Research noted the overall consumption environment and consumer sentiment could improve, in view of the moderating inflation, pick-up in tourist arrivals and stable legal total industry volume, thanks to the effective clampdown on contraband goods.
While RHB Research expected Heineken’s 2023 earnings to decline 2% y-o-y, the amount would still represent a healthy growth of 29% against the base of 2019.
“In a challenging business environment, the brewery sector will provide earnings visibility on relatively sticky demand, further supported by the effective clampdown on contraband. Generous dividend payouts offer yield-seekers a defensive shelter,” the brokerage wrote in its report.
RHB Research lowered its target price for Heineken to RM30 from RM31.80 after the company’s earnings for the first nine months of 2023 missed expectations.
Heineken’s 3Q23 net profit slid to RM87.3mil from RM108.7mil in 3Q22, as revenue fell to RM599.7mil from RM720.5mil.
For the nine-month period, the group’s net profit fell to RM287.7mil from RM308.2mil in 9M22, as revenue declined to RM1.91bil in 9M23 from RM2.06bil in 9M22.
Maybank Investment Bank (MaybankIB) Research, which maintained its “buy” call on Heineken, said the company’s 3Q results were a reflection of slower spending trends.
“We expect improvement in 4Q23 earnings as consumer spending picks up towards the year-end but sales momentum may be relatively moderate,” it said.
The brokerage lowered its target price for Heineken to RM28.20 from RM30.80 previously after reducing its 2023 to 2025 earnings forecasts for the company by 8%-9%.
According to TA Research, the prospects of breweries’ sales should be brighter in 2024 on the back of escalating demand driven by major sporting season next year, namely the Paris Olympic Games and Euro 2024, which takes place in 2Q24.
“That said, on the cost front, it is likely that the key input cost, namely the barley will remain elevated in the first half of 2024 (1H24), given that the El Nino weather condition is expected to cloud the top barley countries until April 2024,” it said.
“Furthermore, the alleviated cost pressure could be exacerbated by the expiry of black sea treaty, which restricted safe export from Ukraine to ease the supply tension,” it added.
TA Research maintained its “buy” call on Heineken, with a lower target price of RM29.60, as compared to RM31.90 previously.
Similarly, Hong Leong Investment Bank (HLIB) Research kept its “buy” rating on Heineken, with a reduced target price of RM29.94 from RM30.74 previously.
“Going into 2024, the ongoing recovery in tourist arrivals and a favourable margin outlook, supported by lower tin and barley prices, are anticipated to underpin Heineken’s earnings growth,” it said.
HLIB Research noted Malaysia recorded 9.2 million foreign tourist arrivals in 1H23, accounting for 57.1% of the government’s initial target of 16.1 million this year. Tourism Malaysia guided the number could hit 18 million (up 78.7% y-o-y) this year, and this bodes well for Heineken’s sales.