Date: September 24, 2024
Broker Name: Maybank Investment Bank Berhad
Stock Recommendation
- Rating: Maintain BUY with an unchanged DCF-TP (Discounted Cash Flow Target Price) of MYR 28.20.
- Share Price: MYR 22.28
- 12-Month Price Target: MYR 28.20 (+32%)
- Previous Price Target: MYR 28.20
Key Drivers
- Market Share: Heineken Malaysia (HEIM) maintained its market leadership with a 1H24 revenue market share of 60%, an increase of 7 percentage points year-on-year.
- Brand Strength: HEIM’s ability to respond to market demand changes, particularly among younger consumers, is key to its leadership. New product launches like Tiger Soju and Edelweiss have revitalized its product range.
- Volume Growth: Despite inflationary pressures, HEIM’s 1H24 saw low single-digit volume growth year-on-year.
- Revenue Growth: Volume growth and a refined product mix are critical to driving revenue and margin expansion.
Raw Material and Cost Factors
- Foreign Exchange Impact: The appreciation of the Malaysian Ringgit (MYR) provides some relief, as many raw materials, including barley, malt, and aluminum, are purchased in EUR and USD. However, rising inbound freight rates limit margin growth.
- Raw Material Costs: Raw material costs constitute about 8% of the group’s revenue.
- Near-Term Outlook: Significant margin improvements depend on volume growth and optimizing product mix rather than material cost savings.
ESG Performance
- ESG Score: Upgraded to 65 (out of 100) from the previous score of 54.
- Improvements: This upgrade is attributed to enhanced carbon emission disclosures, particularly in Scope 3 emissions, reductions in water and waste generation, and increased usage of renewable energy.
Environmental Focus
- HEIM has committed to net zero carbon emissions by 2030 for its production processes and aims to achieve net zero across its entire value chain by 2040.
- In 2023, it achieved a 65% reduction in CO2 emissions compared to its 2018 baseline.
- HEIM treats 100% of its wastewater, exceeding regulatory requirements.
- Since 2017, the company has achieved zero waste to landfill status.
Social Responsibility
- The company dedicates 10% of its marketing budget to promoting responsible alcohol consumption.
- Through the “SPARK Foundation,” HEIM supports rural community teachers with creative teaching techniques.
Governance Highlights
- The board consists of 7 directors, with a 43% representation of independent directors and a 57:43 male-to-female ratio, exceeding the government’s 30% target for female representation.
- The group held its 57th AGM virtually, ensuring comprehensive shareholder participation.
Financial Metrics
- Revenue Growth: Revenue is projected to grow by 4.4% in FY24, with sustained growth in FY25 and FY26 at 3.0% each.
- Core Net Profit: Expected to increase by 4.1% in FY24 and maintain positive growth through FY26.
- EBITDA Growth: Projected at 3.7% in FY24, with slight increases through FY26.
- Dividend Yield: Net dividend yield is expected to rise from 5.5% in FY22 to 6.0% in FY24 and further to 6.3% in FY26.
Risks
- Regulatory Environment: Unfavorable regulatory changes, including excise tax hikes, pose risks to earnings.
- Raw Material Prices: A significant increase in raw material prices could affect profitability.
Balance Sheet & Liquidity
- Free Cash Flow: HEIM generated a free cash flow yield of 3.9% in FY22, expected to increase to 6.1% in FY24.
- Net Gearing: Expected to reduce from 24.0% in FY22 to 14.2% in FY24, demonstrating improving financial leverage.
Outlook
HEIM’s leadership in the Malaysian brewery market, strong brand portfolio, strategic adaptability to consumer preferences, and commitment to sustainability position it well for continued growth. The increased ESG score enhances its standing, though challenges such as regulatory risks and cost pressures from raw materials persist.
