Maintain BUY with unchanged DCF-TP of MYR27.10
HEIM’s overall sales volume should exhibit solid growth in FY22 on the
back of on-trade sales recovery and stable off-trade contribution.
Relaxed business restrictions during Malaysia’s endemic phase will also
aid in keeping positive industry volume growth sustainable in FY22
although cost pressures could partially mitigate earnings growth
potential. We make no changes to our earnings estimates, BUY call and
DCF-TP of MYR27.10 (WACC: 7%, LT growth: 3%).
Positive sales volume growth trajectory
We believe that HEIM’s sales volume remained upbeat in Jan and Feb
2022, driven mostly by Chinese New Year (CNY) celebrations but
moderated towards end-Feb 2022 as COVID-19 cases resurged. Although
off-trade sales remain a larger portion of group revenue as at end-4Q21,
on-trade sales have been steadily rising alongside easing movement
restrictions. Malaysia has also transitioned into an endemic phase on 1
Apr 2022 which could further accelerate on-trade sales recovery given
extended F&B business operating hours and the reopening of
international borders.
Managing cost pressures
Broad-based raw material cost increases (malt, wheat, aluminium,
freight) remains a key challenge to HEIM. However, its pre-emptive price
hike (est. 5%-6%) in 2021 (Off-trade [cans]: Sep 2021, On-trade: Nov
2021) provides some leeway for the group to defend its margins even in
the aftermath of the Russia-Ukraine war, we understand. Note that HEIM
does not directly source any raw materials from Ukraine or Russia.
No earnings impact from minimum wage
HEIM’s sequential earnings are expected to be lower QoQ coming off
from a seasonally high base in 4Q21. That said, with the nation gradually
emerging from the effects of the pandemic, we anticipate for strong
sales growth during CNY. HEIM will also invest more in marketing and
promotional activities in order to drive both its core brands and new
product launches in FY22. Separately, there is no direct impact from the
recently announced minimum wage hike to MYR1,500/mth (from
MYR1,200/mth), effective 1 May 2022, as HEIM’s employees are all
remunerated above the minimum wage threshold.