Heineken’s attractive valuation a positive

KUALA LUMPUR: Heineken Malaysia Bhd’s current valuation is attractive considering its strategic position to ride on the consumption recovery and its generous dividend payouts, according to analysts.

RHB Research noted the brewer is trading below its five-year mean given its market leadership in the domestic beer market, strong brand portfolio and pricing power.

The research house noted the company’s first half 2022’s reported results were above its expectations leading it to raise its dividend discounted model – derived target price for the counter to RM29.20 a share after revising its risks assumptions to factor in the rising interest rate environment.

“Our new target price implies a 23 times price to earnings (PE) forecast financial year 2023 or above the stock’s five-year mean,” it said.

CGS-CIMB Research stated Heineken will probably not experience consumption patterns following a price hike of its products.

The research outfit noted the company had raised selling prices since Aug 22 by an estimated quantum of 6% to 8%.

“This is to account for cost hikes such as in raw materials, foreign exchange volatility and logistics,” CGS-CIMB Research said.

It noted the quantum of price hikes is in line with those implemented by other food & beverage manufacturers in Malaysia.

“We 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 May 15.

“In addition, we believe beer sales will be aided by a gradual increase in tourist arrivals going forward,” the research house said.

UOB Kay Hian Research (UOBKH) is fairly confident beer demand is relatively inelastic to these factors.

“We expect margins to be intact as management indicated average selling prices are due for a revision in August.

“Based on the quantum of revision, it should comfortably see a full cost passthrough and possibly account for any erosion in demand,” UOBKH Research said.

UOBKH Research noted Heineken offers decent forecast 2022 yields of 4.7%, based on a 100% payout rate.

It maintained its ‘buy’ call on Heineken with a higher discounted cash flow based target price of RM30.10 which implies a 24.4 times forecast 2022 PE ratio in tandem with its raised earnings.