Raising product prices
Maintain BUY with lower TP of MYR27.70
HEIM’s product price hikes come on the heels of a similar quantum increase by its competitor while the brewery industry faces material cost pressures along its supply chain. Although beer consumption demand enjoys a certain degree of price stickiness, food inflation has risen significantly in FY22 and consequently, HEIM could experience softer sales volume in 2H22. Hence, we lower our FY22-FY24E earnings estimates by 7% p.a.. Maintain BUY with a lower DCF-TP of MYR27.70 (WACC: 7%, LT growth: 3%).
Product prices to increase by 6%-8%
Based on our channel checks, HEIM will be raising product prices by 6%- 8%, effective 1 Aug 2022, in light of ongoing input cost pressures. We understand that price adjustments will be made to both on-trade and offtrade channels and its core brands (i.e. Guinness Stout, Tiger, Tiger Crystal, Heineken, and Strongbow) will be affected.
Potential adverse impact to volumes?
HEIM’s price adjustment announcement does not come as a surprise given that its competitor has also lifted product prices in Jul 2022 (by a similar 6%-8%, we suspect). Historically, industry price adjustments have led to softer volume sales in the following 2-3 months.
Revised earnings estimates by 7% p.a.
Given our expectations for softer consumer spending in 2H22 on the back of significant food inflation costs, we cautiously reduce our FY22/FY23/FY24E earnings estimates by 7% p.a. upon adjusting for lower FY22E volume growth assumption to 13% (vs. 20% YoY previously). Although HEIM’s price hikes will aid in defending group margins, we believe this may slow its pace of volume recovery to pre-pandemic levels.
