Maintain BUY with a higher DCF-TP of MYR29.30
1Q22 results were ahead of expectations on stronger-than-expected sales
volume. Although raw material costs continue to rise, we believe earnings
prospects for HEIM remains positive on the back of post-pandemic led
volume recovery, product price hikes and internal cost efficiencies. Thus,
we raise our FY22-FY24 earnings estimates by 12%-26% to derive a higher
DCF-TP of MYR29.30 (WACC: 7%, LT growth: 3%).
Above expectations
HEIM’s 1Q22 core net profit of MYR113m (+54% YoY, +18% QoQ) beat
expectations at 38%/41% of our/consensus full-year earnings estimates.
Stronger-than-expected sales volume attributed to the earnings
outperformance. No dividend was declared this quarter as they are
traditionally declared in 2Q and 4Q.
Robust sales volume recovery
1Q22 revenue increased by 28% YoY given: (i) looser movement
restrictions, (ii) higher average product ASPs, and (iii) larger-scaled
marketing campaigns during Chinese New Year (CNY). Meanwhile, EBIT also
grew 60% YoY due to effective cost management throughout its supply
chain (lower sales incentives to on-trade channels, we suspect). Despite
flattish revenue growth QoQ (+1% QoQ), EBIT also grew 24% alongside a
4.2 ppts QoQ increase in EBIT margins mainly from the hike in certain
product ASPs in 4Q21 and ongoing cost initiatives.
Positive FY22 outlook despite increasing input costs
HEIM’s earnings prospects are expected to be positive in FY22. As the
nation moved into an endemic phase on 1 Apr 2022, we expect sequential
volume growth to be stronger, driven by the reopening of international
borders and extension of business hours (past midnight) for on-trade
channels. Further, entertainment outlets (eg. clubs) will also be allowed
to reopen from May 15 onwards, offering another avenue for volume
recovery within the industry. Hence, we lift our FY22/FY23/FY24 earnings
estimates by 26%/13%/12%. Rising raw material costs will be a continuous
challenge in FY22 but HEIM will aim to lift sales volume through new
product innovations and more frequent promotional & marketing
campaigns in order to mitigate further cost pressures.