Regional Morning Notes: Company Results Analysis

Broker: UOB Kay Hian Private Limited

Date: Wednesday, 13 November 2024

Heineken Malaysia Bhd (HEIM MK)

Company Results and Recommendation

Heineken Malaysia Bhd, a market leader in the malt liquor market, reported its 3Q24 core earnings which came in within expectations. The company, known for its key drive brands such as Tiger, Heineken, and Guinness Anchor, maintained a growth momentum in 4Q24 despite a slight loss in revenue share. The stock is rated as a “BUY” with a target price of RM29.20, offering a potential upside of 27.4% from the current share price of RM22.92. The company aims to benefit from improving consumer sentiment.

3Q24 Financial Highlights

Heineken’s 3Q24 operating profit grew by 11% year-over-year (yoy) despite a modest revenue growth of 3%. This was attributed to prudent cost control. The core net profit for 3Q24 was RM97.8 million, up by 7.4% quarter-over-quarter (qoq) and 12.0% yoy. This brings the 9M24 net profit to RM311.4 million, representing 76% of the full-year estimates by UOB Kay Hian and the market.

Key Financial Metrics

• Revenue: RM619.0 million (+9.5% qoq; +3.2% yoy)
• EBITDA: RM152.6 million (+6.0% qoq; +11.2% yoy)
• EBIT: RM130.1 million (+7.2% qoq; +10.7% yoy)
• Pre-tax Profit (PBT): RM128.8 million (+7.4% qoq; +11.7% yoy)
• Net Profit: RM112.3 million (+23.2% qoq; +28.6% yoy)
• Core Net Profit: RM97.8 million (+7.4% qoq; +12.0% yoy)
• EBIT Margin: 21.0%
• Net Profit Margin: 18.1%
• Core Net Profit Margin: 15.8%

Stock Performance and Valuation

Heineken’s stock performance indicated a stable growth trajectory with a 52-week high/low of RM24.50/RM19.89. The stock is supported by a solid dividend yield of 5.9-6.7% for 2024-26, based on a 100% payout. UOB Kay Hian’s DCF-based target price of RM29.20 is derived using a WACC estimate of 7.8% and a terminal growth rate of 2.7%, implying a 19.9x 2025F PE, which is on par with its five-year mean.

Environmental, Social, and Governance (ESG) Updates

• Environmental: Heineken has improved its water efficiency by 16% relative to 2014 and aims to reduce CO2 emissions by 40% in production compared to 2008.
• Social: More than 10% of Heineken’s media budget is committed to advocating responsible consumption.
• Governance: The company has a board gender diversity ratio of 57:43 male-to-female and a management gender diversity ratio of 50:50 in middle to senior management positions.

Revenue Share and Market Impact

Heineken continues to lead the Malaysian market with around 60% of revenue share. However, the company experienced a decline of 0.9 percentage points qoq and 2.4 percentage points yoy in 3Q24. This was attributed to competitors’ aggressive brand reinvestments and higher price hikes. Notably, Heineken conducted a price hike on selected products in April 2024, with an overall average selling price (ASP) hike of about 3%.

Future Outlook

The company aims to maintain its growth momentum into 4Q24, supported by stronger seasonality and enhanced marketing efforts ahead of the Chinese New Year celebration in January 2025. UOB Kay Hian forecasts a slight expansion in core net profit margin for 2024, highlighting the company’s focus on cost optimization.

Key Financial Projections (2024-2026)

• Net Turnover: RM2,734 million (2024F), RM2,872 million (2025F), RM2,984 million (2026F)
• EBITDA: RM562 million (2024F), RM600 million (2025F), RM623 million (2026F)
• Net Profit: RM412 million (2024F), RM444 million (2025F), RM469 million (2026F)
• EPS: 136.4 sen (2024F), 147.0 sen (2025F), 155.3 sen (2026F)
• PE Ratio: 16.9x (2024F), 15.7x (2025F), 14.9x (2026F)
• Dividend Yield: 5.9% (2024F), 6.4% (2025F), 6.7% (2026F)
• Net Margin: 15.1% (2024F), 15.5% (2025F), 15.7% (2026F)

For a detailed financial analysis and insights into Heineken Malaysia Bhd, investors can rely on UOB Kay Hian’s comprehensive evaluation, which highlights the company’s robust market position and strategic initiatives aimed at sustaining growth and profitability.