HEIM: Earnings Remain Resilient Amidst Tax Normalization; Strategic Pricing to Buffer Excise Hike
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company reported its core net profit for the first nine months of fiscal year 2025 (9MFY25) at RM318.1 million, aligning with both the investment bank’s and consensus full-year projections. However, 9MFY25 core earnings experienced a marginal year-on-year decline of 2.4% to RM318.1 million, primarily due to higher tax expenses incurred during the third quarter.
Performance Review
For the third quarter of fiscal year 2025 (3QFY25), revenue saw a 6.0% year-on-year increase, reaching RM656.0 million. This growth was largely propelled by a 2-8% price adjustment implemented across both on-trade and off-trade channels. Despite the robust top-line growth, 3QFY25 core earnings remained flat year-on-year at RM112.9 million. This stability was primarily attributed to the normalisation of the effective tax rate to 24.1% in 3QFY25, a significant increase of 11.2 percentage points year-on-year.
The prior year’s corresponding quarter had benefited from the utilisation of reinvestment allowance, which resulted in a substantially lower effective tax rate of 12.8%. No dividend was declared for the quarter under review.
Outlook and Strategic Response
Looking ahead, the company faces an increase in excise duty on alcoholic beverages by 10% to RM192.5 per litre of 100% alcohol, effective November 1, 2025. However, the previously implemented 2-8% price adjustments (August 2025 for on-trade and September 2025 for off-trade channels) are expected to partially mitigate the impact of rising operating costs through effective cost pass-through mechanisms.
Investment Outlook
TA SECURITIES maintains its BUY recommendation for the stock with an unchanged target price of RM24.00, reflecting a potential upside of 10.9% from its last traded price of RM21.64. Despite a softer earnings outlook, the investment bank considers the group’s valuation compelling, trading at a CY26 PER of 14.8x, which is notably below its 5-year historical average of 22.3x. This favorable valuation is further supported by an appealing FY26F dividend yield of 6.7%, enhancing overall investor returns.
