Profits brewing for Heineken Malaysia in 3Q
KUCHING: Heineken Malaysia Bhd’s (Heineken) revenue grew by 11.6 per cent on the back of higher sales volume, given that business in food and beverage (F&B) outlets have slowly recovered starting from September, as the dine-in restrictions for the fully vaccinated were eased.
Core net profit also grew in tandem, but at a much higher rate of 101.9 per cent, owing to its effective commercial execution and cost-optimisation efforts such as effective cost management, lower marketing expenses and organisational rightsizing.
The team with Hong Leong Investment Bank Bhd (HLIB Research) said Heineken’s lower revenue of 17.7 per cent was mainly due to the 1.5 months of operation suspension in its brewery during the quarter, which lasted until 15th August 2021.
Note that the brewery was allowed to operate at its normal capacity in the third quarter 0f 2020 (3Q20).
“We are encouraged by the further relaxation of movement restrictions and the lifting of interstate travel ban as we believe that this could help to support the recovery of F&B sector and on-trade beer volume,” HLIB Research said in its notes.
“While 4Q has historically been Heineken’s strongest quarter, however, we do not expect its 4Q21 performance to exceed its pre-pandemic 4Q earnings contribution of circa RM90 million to RM100 million, given the lack of foreign tourists and entertainment venues like nightclubs and pubs are still not allowed to resume operations.”
On a cumulative basis, researchers with Kenanga Investment Bank Bhd (Kenanga Research) saw that Heineken’s top line for the first nine months for FY21 (9MFY21) grew moderately by 3.5 per cent to RM1.3 billion as business, economic and social activities were affected by restrictions for the period under review.
“The absence of custom duty and improved margins work together to reduce operating expenditure by two per cent,” it said in its own analysis.
“Earnings before interest, tax, depreciation and amortisaion margin also improved to 19.5 per cent attributable to improved business efficiencies and ongoing cost saving initiatives that were taken by the group. Given the lower base, profit after tax and minority interest surged 50 per cent to RM149.8 million.
“We remain optimistic on Heineken’s ability to report better performance ahead due to the easing of lockdown measures,” Kenanga Research added. “In addition, the reopening of borders to tourists will also boost the demand for alcoholic beverages.
“Moreover, the absence of a much-speculated increase in excise duty is a plus. The continuation of social events could also contribute to the demand for alcoholic beverages.”
The recently announced price hike of products is also seen favourably by analysts as it would improve Heineken’s margins. Finally, as the government reaches its targeted vaccination rates, entertainment outlets could be given the green light to operate as usual at pre-pandemic hours, thus potentially being the major driver for higher sales.
“Post results, we maintain our FY21 core net profits (CNP) but slashed FY22 CNP by 10.3 per cent due to reflect them being impacted by the Prosperity Tax. However, we foresee that this could partially be offset by a pent-up demand of beer sales.”