Healthy consumer sentiment, improved economic activity, and rising tourist arrivals in 2024F are potential re-rating catalysts seen for Heineken Malaysia Bhd (Heineken Malaysia).
CGSCIMB, in its Company Note today (Jan 26) said they reiterate Add on Heineken Malaysia with an unchanged GGM-derived target price of RM29.75, providing 23.5% upside potential.
CGSCIMB thinks at 17.3x FY24F P/E, valuations are undemanding vs. consumer staple peers and historical trading range, with a 5.8% FY24F dividend yield.
Looking forward to 2024F
With 6.5% yoy growth in Malaysian private consumption baked into their economics team’s forecast, CGSCIMB expects the demand for alcoholic beverages, including beer, to grow in 2024F.
CGSCIMB estimates factor in 4.5% yoy growth in Heineken Malaysia’s FY24F revenues, driving 7.4% yoy core net profit growth. Upside risks could come from stronger-than-expected tourist arrivals, a buoyant stock market (CGS’s end-2024F KLCI target of 1,755 pts) and a stronger RM in 2024F vs. US$, all of which would be supportive of stronger revenue growth for Heineken Malaysia.
Seasonal uptick but not pronounced enough
CGSCIMB reduces their FY23F/24F/25F revenue projections for Heineken Malaysia by 4.7%/4.2%/3.8%. Checks with F&B operators suggest that while there was a seasonal pick-up in sales in 4Q24F, the uptick was not pronounced enough to meet their previous expectations of a 2.3% yoy revenue decline in FY23F, after a 7.5% yoy decline in 9MFY23.
CGSCIMB ‘s new estimates imply a 5.5% yoy decline in 4Q23F revenues.
CGSCIMB have however raised their FY24F/25F revenue growth forecasts to 4.5% p.a., from 4.0% p.a. previously and their FY23F/24F/25F core net profit forecasts have been reduced by 5.4/4.9/4.3% as a result of the lower revenue estimates.
Reiterate Add with TP of RM29.75
CGSCIMB reiterates their Add call on Heineken Malaysia with an unchanged Gordon Growth Model-derived target price of RM29.75 (ROE 96%, COE 9%, growth 4%) as a roll forward our basis period mitigates the impact of reduced profit estimates.
At 17.3x FY24F P/E, Heineken Malaysia’s shares are trading at just above -0.5 s.d. of its post-2010 trading range and are attractively valued vs. consumer staples under their coverage.
Additionally, its FY24F dividend yield of 5.8% is also attractive vs. this peer group.
Key downside risks would be 1) a continued slowdown in beer consumption, 2) increased competition driving marketing spend and 3) a sharp increase in raw material costs in a weak demand environment, CGSCIMB added.
