Strong tailwinds for Heineken Malaysia
KUCHING: With the entire nation enthralled with World Cup, against the backdrop of the current tax holiday and a new government that is keen on stamping out the illicit alcohol market, analysts are all but positive for Heineken Malaysia Bhd ( Heineken Malaysia) right now.
Following this, the research arm of Hong Leong Investment Bank Bhd (HLIB Research) upgraded its call on Heineken Malaysia to ‘buy’ to reflect the aforementioned tailwinds and its strong position in a duopolistic industry.
The current ongoing FIFA 2018 World Cup is especially expected to help boost Heineken Malaysia’s top line significant as kick-off times for games this time round is mostly between 6 and 11 pm which will help drive consumer consumption.
The last time a FIFA World Cup had favourable kick-off times for Malaysia’s time zone was in 2010 and during that time, Heineken Malaysia reported a top line year over year (y-o-y) growth of 11 per cent in the quarter that the world cup matches took place in.
And besides that, the current consumer tax holiday is also expected to drive consumption.
“Note that even before the newly elected government came into power, the MIER Consumer Sentiment Index rose from 82.6 in the fourth quarter of 2017 (4Q17) to 91 in 1Q18, the highest post GST implementation.
“We expect consumer sentiment to accelerate going forward due to the zerorisation of GST and fixed fuel prices,” guided the research arm.
That being said, the benefits of the current tax holiday are short-term and are expected to subdue somewhat come September when the sales and services tax is expected to be reintroduced.
Instead a tailwind that will be a longterm benefit to Heineken Malaysia will be the potential clamp-down on the illicit market by the new government as their alternative 2018 budget has stated that they expect to collect RM2.5 billion from alcohol excise duty, this is significantly higher than the RM1.7 billion target by the previous government.
To achieve this target, HLIB Research speculates that the new government will clamp down on illicit alcohol which will drive volumes back to the legal market in order for them to collect more excise duty.
“We reckon the increase in excise duty collection is likely via clamping down of illicit, leading to a larger legal market share as opposed to an outright duty rate increase as Malaysia’s excise duty is already one of the highest in the world,” they explained.
All in, things are looking good for Heineken Malaysia from here on out and with its greater market share in the duopolistic industry, resilient earnings, low capex requirements and decent dividend yield, HLIB Research has decided to raise their FY18, 19 and 20 forecasts by 4.2, 8.9 and 12.2 per cent respectively to better reflect increase top-line growth for the group.
HLIB Research upgrades their call on the stock to buy with a higher target price of RM25.50 per share.