Efficiency to support Heineken profitability

PETALING JAYA: Weaker consumer sentiment and higher costs are seen weighing on Heineken Malaysia Bhd’s second-half outlook.

This is prompting CGS International (CGSI) Research to cut its earnings forecasts and downgrade the brewer to a “hold” from an “add” previously.

The research house said Heineken Malaysia’s second-quarter performance was hit by softer demand, distributor inventory management and higher raw material and packaging costs, with consumer behaviour also shifting from on-trade to off-trade consumption.

CGSI Research said the on-trade channel had also been affected by stricter drink-driving enforcement earlier this year, while aluminium-related packaging costs remained elevated due to supply disruptions stemming from the Middle East conflict.

Aluminium prices had risen 5.6% year-to-date and about 33% year-on-year, contributing to a 3.7 percentage point contraction in earnings before interest, taxes, depreciation and amortisation margin to 21% in the second quarter.

“We remain cautious on the second-half outlook given persistently weak consumer sentiment, continued softness in the on-trade channel and elevated raw material and packaging costs,” the research house said.

CGSI Research cut its financial year 2026 (FY26), FY27 and FY28 earnings forecasts by 37.8%, 31.9% and 21.7% respectively to reflect the more challenging operating environment.

It now expects net profit of RM303mil in FY26, before recovering to RM352mil in FY27 and RM427mil in FY28.

Revenue forecasts were also reduced by about 11% to 20% across FY26 to FY28, reflecting weaker volumes and continued inventory management by distributors.

“We raise our FY26 forecast capital expenditure forecast by 47% to account for management’s plan to build a new production line to support future demand following the relocation of production from Singapore,” it said.

For the second quarter of FY26, Heineken Malaysia’s net profit fell 39.1% year-on-year to RM50.5mil, which brought first-half net profit to RM155mil, down 24.5% year-on-year and representing only 31.4% of CGSI Research’s previous full-year forecast and 34% of Bloomberg consensus estimates.

CGSI Research lowered its target price to RM19.83 per share from RM31 per share and said the stock offered limited near-term re-rating catalysts at 16.1 times FY27 forecast price-to-earnings with a projected dividend yield of 6.1%.

Potential downside risks include higher excise duties under Budget 2027, weaker alcohol demand and sluggish tourist arrivals, while upside risks include a stronger recovery in consumer spending, easing input costs and higher-than-expected export volumes to Singapore.

Meanwhile, TA Research said the headwinds might cause any demand recovery to remain gradual given the cautious economic environment.

“Nevertheless, the group is expected to continue optimising its supply chain, leveraging economies of scale and improving operational efficiency to support profitability,” TA Research said.

“Following the earnings revisions, we lowered our target price to RM19.40 per share from RM25.80 per share before, based on a discounted cashflow valuation and downgrade the stock to a hold,” it added.