Heineken’s earnings beat estimates with economy reopening


HEINEKEN Malaysia Bhd’s net profit of RM150 million for nine months of 2021 (9M21) beat analysts’ estimates on a sharp post-reopening volume recovery and quick turnaround from its operations’ suspension.

RHB Research analyst Soong Wei Siang noted that Heineken’s net profit increased 40% year-on-year (YoY), accounting for 73% or 68% of RHB Research and street full-year forecasts.

“We deem the results as above expectations, in anticipation of a strong fourth quarter of 2021 (4Q21) ahead.

“The positive deviation could be due to the stronger-than-expected pent-up demand and quick turnaround from the plant closure under the lockdown enforcement in 3Q21,” Soong wrote in a report on the brewer last Friday.

RHB Research has raised Heineken’s financial year of 2021 (FY21) forecast earnings by 12%, but made no material change to its FY22-23F earnings.

The brokers’ dividend discount model-derived target price (TP) for Heineken was also raised to RM25.80 (inclusive of a 6% environmental, social and governance premium), which implies 25 times price-earnings (P/E) FY22F, slightly above the stock’s five-year mean.

“This is also in line with the valuation pegged to peer Carlsberg Malaysia Bhd of RM23.10 TP,” the report stated.

On a YoY basis, Heineken’s 9M21 revenue grew 4% to RM1.3 billion on higher off-trade consumption while consumers adjusted to the normal better than in 2020.

“This, together with rationalisation in marketing investment and workforce right-sizing, propelled a 42% jump in 9M21 core price before tax to RM197 million,” Soong explained.

Heineken’s 3Q21 revenue rose 12% YoY to RM390 million, despite the longer period of plant shutdown versus 2Q21 as on-trade volumes started to recover following the easing of dine-in restrictions in September.

“Its 3Q21 net profit more than doubled quarter-on-quarter (QoQ) to RM51 million, which we believe was also a function of lower marketing spending as a result of the lockdown in 3Q21,” Soong wrote.

For a year-end treat, he expects Heineken’s earnings recovery momentum to further gain pace sequentially on pent-up demand, aided by year-end seasonality as the economy reopens in the 4Q.

“Beyond the near term, 35% YoY FY22F earnings growth will be underpinned by a broader-based consumption recovery, an average selling price rise and a leaner workforce structure.

“We highlight the company has underperformed versus most of its consumer peers in the year-to-date (YTD) share price performance, notwithstanding the recovery prospects,” he further said.

The analyst believes the stock’s valuation is undemanding and regard it as an attractive laggard play as it is trading at 22 times P/E FY22F or below the five-year mean.

The downside risks for the stock could be a resurgence of Covid-19 infections and unfavourable regulatory or policy changes.

Hong Leong Investment Bank (HLIB) stated Heineken’s 9M21 core net profit was below its and consensus estimates at 59% and 68% of full-year estimates.

“The discrepancy is mainly due to lower-than-expected revenue,” HLIB’s Sophie Chua Siu Li wrote in a research note on Heineken.

She added that the brewer has not declared any dividend for the quarter.

Heineken’s core net profit for QoQ has grown in tandem but at a much higher rate of 101.9%, owing to its effective commercial execution and cost-optimisation efforts.

Its YoY’s revenue was lower by 17.7%, mainly due to the operation suspension for one and half months in its brewery during the quarter, which lasted until Aug 15.

“Core net profit was 16.7% lower as the falling revenue was partly mitigated by the group’s cost-saving initiatives,” she stated.

Heineken’s YTD revenue, however, grew by 3.5% and net profit was higher 39.7% from better revenue management and increased in-home consumption as consumers adapted to the new normal despite lockdowns and movement restrictions were re-imposed.

Chua added that further relaxation of movement restrictions and the lifting of the interstate travel ban could help to support the recovery of the food and beverage sector and on-trade beer volume.

“While 4Q has historically been Heineken’s strongest quarter, we do not expect its 4Q21 performance to exceed its pre-pandemic 4Q’s earnings contribution of RM90-RM100 million, given the lack of foreign tourists and entertainment venues like nightclubs and pubs are still not allowed to resume operations,” she added.

HLIB has lowered Heineken’s earnings forecast by 5%-9% after taking into account the lower sales arising from the continued closure of entertainment venues like nightclubs and pubs, while maintaining a ‘Hold’ call on Heineken with a TP of RM22.50.

“Following our earnings adjustment, our discounted cashflow-derived TP is lowered from RM23.85 to RM22.50 (weighted average cost capital: 8.0%, TG: 2.5%) reflecting the downward earnings revisions,” she further said.