BREWER Heineken Malaysia Bhd’s below expectations 1H FY2021 results is justifiable given unfavourable operating conditions stemming from impact of the unprecedented full movement control order (FMCO) in June.
Kenanga Research is of the view that near-term volatility remains with earnings recovery hinging on the success of the vaccination roll-out by end-CY2021.
“That said, near-term weakness in performance is evident given that restriction on its brewery operations were only lifted in mid-August, dampening third quarter performance,” opined analyst Koh Huat Soon in a results review.
“Inconsistent policies with regard to brewery operations might be detrimental in the long run, jeopardising the group’s competitiveness and sales.”
According to Kenanga Research, Heineken Malaysia’s 6M FY2021 profit after tax and minority interests (PATAMI) of RM98 mil came in below expectations, accounting for 37%/39% of its/consensus estimates.
This was a result of worse than expected impact from the total lockdown that took place in June. Nevertheless, the brewer declared a dividend of 15 sen which implies a payout of 46% year-to-date.
All-in-all, the research house reiterated “market perform” on Heineken with a lower target price of RM23.90 (from RM25.15 previously) to reflect the near-term challenges ahead.
“While we are positive on the progress of the national vaccination roll-out, we see the spectre of sin tax ahead coupled with an unfavourable ringgit rate, undermining raw materials costs,” added Kenanga Research.
Meanwhile, CGS-CIMB Research upgraded Heineken to “add” from “hold” previously but retained its DDM (dividend discount model)-based target price of RM24.20 despite seeing near-term weakness,
“We upgrade Heineken due to (i) its attractive valuation (CY2022F price-to-earnings ratio is at an 11% discount to its five-year mean of 27 times); (ii) its strong balance sheet (net cash of RM105.7 mil as of end-2Q FY2021); and (iii) benefits from the potential recovery in economic activities nationwide (especially in the on-trade segment),” added the research house.
At 10.23pm, Heineken was up 24 sen or 1.07% to RM22.74 with 11.700 shares traded, thus valuing the company at RM6.87 bil. – Aug 26, 2021
