HEIM Updates – 7 Apr 2017

HEIM Analysis File – FY16 Q6 – https://doc.co/wybkYA

In the foreseeable future, I think HEIM won’t have significant catalysts to boost up its growth. Having said that, HEIM will still be able to achieve steady performance even if alcoholic beverage industry is a highly regulated industry, and also faces contrabands issues. At 17.98, valuation of HEIM is not bad where I believe its fair value range from 17.9 to 20. Besides, if you buy HEIM now, dividend yield is less than 4% (excluding special dividends).

As of now, I won’t consider to accumulate HEIM, but to hold it for >6.5% dividend yield based on my average costs.

There is one slight issue in my analysis file, but the issue doesn’t impact valuation very much. In its Cash Flow Statement, you can easily spot one item called “Amortisation of prepaid contractual promotion expenses”. In the footnote (AR 2016, page 129, Note 7.2), HEIM stated:

Included in prepayments of the Group are prepaid contractual promotion expenses for promotional activities of RM43,531,000 (30.6.2015: RM49,015,000) of which RM20,125,000 (30.6.2015: RM26,218,000) are to be amortised over a period of more than 12 months. The prepaid contractual promotion expenses are made to the Group’s distribution channels to carry out promotional activities specified in the contract. The amount is amortised to profit or loss based on the volume purchased by outlets from the distributors or the time period as stipulated in the contract.

Unfortunately, HEIM didn’t disclose how they allocate “prepaid contractual promotion expenses for promotional activities“, and how they amortised the expenses based on the volume purchased. Thus, there is no way for me to make projection. Although the figures were quite large, it didn’t impact valuation significantly.

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HEIM – Fundamental Analysis (20 Jul 2016)

Excel – Download the analysis file

Latest Financial Report – Q4 2016 Financial Report (18 Jul 2016)

FY16 Q4 Results Highlight:

  • Q4FY16 versus Q4FY15
    • Revenue grew 15.6% from RM398m to RM460m due to as the strong sales led by Chinese New Year festival in 3QFY16 was sustained by the event of UEFA Euro 2016 in 4QFY16.
    • Profit before tax increased 21.5% from RM66m to RM80m.
    • Net profit increased 38.3% from RM44m to RM61m.
    • Earnings per share increased from 14.57 sen to 20.15 sen.
  • 12MFY16 versus 12MFY15
    • Revenue grew 5.7% from RM1.75b to RM1.85b.
    • Profit before tax for the period increased 20.4% from RM292m to RM352m.
    • Net profit increased 24% from RM214m to RM266m.
    • Earnings per share increased from 70.90 sen to 87.94 sen.
    • The improvement is mainly driven by higher sales and favourable product mix, while the enhancement efforts by the authorities to tackle contrabands have also helped.

Going Forward:

  • HEIM management (and I) remains confident that it will deliver commendable results for FY16 even if there are many uncertainties in the global economy.
  • In my opinion, fair value of HEIM is from 18 to 19 (Uncertainty Risk: HIGH).
  • I will continue to hold, but will not accumulate HEIM for the time being. Let it ride!

At the time of writing, I owned shares of HEIM.