Stronger-than-expected volumes in 2Q22
? 1H22 core net profit of RM199.5m (+101.1% yoy) was above expectations due to stronger-than-expected sales volume in 2Q22.
? We expect HEIM to mitigate input cost hikes with higher selling prices, a more profitable sales mix and continued focus on cost efficiencies.
? Stay Add; we see HEIM as a key proxy for a recovery in on-trade beer sales.
1H22 core net profit rose 101.1% yoy, beating expectations
2Q22 core net profit came in at RM86m (+246% yoy), bringing 1H22 core net profit to RM200m (+101% yoy). While we expect slightly weaker hoh results in 2H22, 1H22 core net profit was above expectations (64% of our and 63% of Bloomberg consensus FY22 estimates). This was due to stronger-than-expected sales volume and higher-than expected margins from better cost efficiencies. HEIM declared an interim dividend of 40 sen/share, bringing 1H22 dividend to 40 sen/share, in line (60.6% dividend payout).
2Q22: Strong performance driven by volume growth
2Q22 revenue rose 84.5% yoy due to higher sales volume (low base effect due to impact of MCO in 2Q21) and selling price hikes. Given this, coupled with better cost efficiencies and a more profitable sales mix, 2Q22 EBITDA margin grew 8.3% pts yoy to 22.8% while 2Q22 core net profit grew 245.8% yoy to RM85.9m. This also set the tone on a cumulative basis, with 1H22 revenue and core net profit climbing 49.7% and 101.1% yoy, respectively. On a qoq basis, 2Q22 revenue and net profit declined by 7.7% and 24.4%, respectively, due to seasonality factors as 1Q is typically a stronger quarter given CNY festivities.
Passing on input cost hikes by raising selling prices
HEIM raised selling prices from 1 Aug 22 by an estimated quantum of 6% to 8%. This is to account for cost hikes (raw materials, forex volatility and logistics). In our view, the selling price hikes are unlikely to lead to lower consumption patterns as i) beer remains the cheapest form of alcohol, and ii) the quantum of price hikes is in line with those implemented by other F&B manufacturers in Malaysia.
Sales volumes should continue to show recovery
Despite the selling price hikes, we still expect sales volume to gradually improve going forward. This is on the back of higher on-trade sales volume, with a recovery in consumer footfall following the reopening of night entertainment outlets in Malaysia from 15 May 22. In addition, we believe beer sales will be aided by a gradual increase in tourist arrivals (reopening of Malaysia borders from 1 May 22 onwards) going forward.
Reiterate Add; a key proxy for recovery in on-trade sales
We raise our FY22-24 EPS forecasts to account for higher beer sales. Nevertheless, our DDM-based TP is lowered to RM27.70 (Beta: 0.7x, g: 3.5%) as we raise our risk-free rate to 4.3% from 3.8% previously (to account for interest rate hikes). We still like HEIM for its i) attractive valuations (CY23F P/E is at 24.1% discount to 5-year mean of 24.7x), ii) benefits from a recovery in economic activity, mainly on-trade, and iii) strong brand equity.