Heineken Malaysia : Results chug along BUY

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Heineken Malaysia : Results chug along BUY

We maintain our BUY recommendation with an unchanged DCF-derived fair value of RM19.80/share on Heineken Malaysia Bhd (HEIM). We leave our earnings forecast unchanged while introducing FY19F projections. We like HEIM for highly defensive earnings properties and its attractive dividend yields of 5.7-6.6% for FY17F-FY19F. HEIM recorded a 4QFY16 net profit of RM104.7mil (QoQ: 55.4%, YoY: 15.2%) bringing FY16 net profit to RM1,880mil (YoY: 6.6%). HEIM’s results key highlights included:- (1) Topline for the quarter grew by 10.1% YoY on the back of purchases tied to CNY spending. Better brand mix skewed towards HEIM’s premium brands, Heineken and Guinness boosted overall ASPs. While the better brand mix is neutral to earnings, we are pleasantly surprised over this development as it may be indicative of consumer spending displaying greater resilience than initially thought. (2) 4Q saw a favourable timing of capital adjustments, lowering overall FY16’s effective tax rate to 21.3% (vs. our assumption of 26.4%). Excluding the deviation, earnings would have fallen in line with expectations.

We expect ASPs to remain unchanged given the constraints arising from recently adjusted Price Control Anti-Profiteering Act on F&B operators. Recall that ASPs were upward adjusted by 3-5% as recently as FY16 following the revision in alcohol excise duty in Mar 2016. Management expects the integration to Heineken International and as a result, access to global procurement to alleviate rising input costs. Consequently, we expect overall margins to hold steady as other operational efficiencies are expected to be realised. Key risk to our forecast includes unfavourable outcome of unresolved bills of demand with the Royal Malaysian Customs amounting to RM56.3mil or 20% of FY17F earnings. HEIM’s strong free cash flows and low net gearing level of 20% should hold it in good stead to sustain dividends.

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UMW Holdings : Better times are coming              HOLD

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