Heineken Malaysia (HEIM) continues to navigate the challenges posed by inflationary pressures in the brewery industry while maintaining a BUY rating and an unchanged discounted cash flow target price (DCF-TP) of RM28.20, as cited by the Maybank Stock Broking House. The company's robust core brands and strategic marketing efforts have expanded product demand, allowing it to outperform competitors despite a challenging consumption environment. Analysts also note an increase in HEIM's environmental, social, and governance (ESG) score, which has risen from 54 to 65 out of 100, reflecting improved carbon emission disclosures.

The company's unwavering market leadership, with a revenue market share of 60% in the first half of 2024, has been bolstered by its agility in responding to changing consumer preferences, particularly among younger consumers. The introduction of new product variants, such as Tiger Soju and Edelweiss, has revitalised its brand offerings and contributed to a low single-digit volume growth year-on-year in 1H24. This adaptability has mitigated some of the adverse impacts of average selling price (ASP) increases implemented in April 2024, with the current ratio of on-trade to off-trade volumes estimated at approximately 55:45, a shift from the pre-pandemic average of around 67:33.

Despite the positive impact of the Malaysian Ringgit's appreciation on cost savings, significant margin improvement is not anticipated in the near term due to rising inbound freight rates. The majority of HEIM's raw materials, including barley, malt, and aluminium, are procured in euros and US dollars, meaning that while currency fluctuations may offer some cost relief, they are offset by increased logistics expenses. Analysts highlight that meaningful margin growth will still largely depend on volume increases and enhancements to the product mix. Raw material costs account for approximately 8% of the group's revenue, underscoring the importance of managing these expenses effectively.

In its most recent annual report, HEIM's upgraded ESG score reflects substantial improvements in greenhouse gas (GHG) emission disclosures, particularly concerning Scope 3 emissions, as well as reductions in water and waste generation. The company has also increased its usage of renewable energy sources, further strengthening its sustainability profile.

Source: Maybank
Title: Advantages of being agile