This article first appeared in The Edge Financial Daily on May 27, 2019

Heineken Malaysia Bhd
(May 24, RM23.76)
Maintain hold with a higher target price of RM25.00: Heineken Malaysia Bhd’s (HEIM) first quarter of financial year 2019 (1QFY19) core net profit increased 8.3% to RM52.8 million, driven by organic sales growth (ex-SST price adjustment) of 13.3% year-on-year (y-o-y) as the group recorded a successful CNY sales campaign alongside better performances across its key trade channels.

The robust sales performance was also partially attributable to some inventory stocking made by retailers ahead of HEIM’s price hike in April, which was done mainly to pass on higher raw materials as well as packaging costs.

All in, the results were in line with both our and consensus expectations, accounting for 17% and 18% of 2019 estimates respectively. We note that 1Q is a seasonally softer quarter for HEIM, due to higher sell-in recognised in 4Q in advance of the CNY festivities.

In tandem with Carlsberg, HEIM’s price hike of 3% to 12% could potentially keep a cap on volume sales growth for the remainder of the year, as this marks the brewers’ third domestic price hike within a year.

That said, margins would be supported going forward. We remain positive on HEIM’s prospects in 2019, which could be bolstered by a decline in the illicit alcohol market due to clampdown efforts by local authorities. — Affin Hwang Capital Research, May 24