Thai Beverage - Expect return to stability
- Promotional activities to go on as planned.
- Market share across segments generally stable.
- Beer segment enjoying better margins.
1QFY17 results within expectations
- Thai Beverage PLC’s (ThaiBev) 1QFY17 results were broadly within our expectations amid a weaker consumer environment and promotional activities were postponed due to the mourning period in Thailand. Keep in mind that 4QCY16 is typically the peak season.
- Revenue was down 8% YoY to THB46.8b, forming 24% of our FY17F estimate, as sales declined across the segments - Spirits (-11%), Beer (-4.6%), Non-alcoholic Beverages (NAB) (-1.3%) and Food (-1.0%).
- Nonetheless, lower SG&A expenses, higher net profit of beer business and share of profit from associates helped PATMI increase 28% to THB7.7b to constitute 29% of our full year estimate.
Promotional activities to go on as planned
- For both the Spirits and Beer segments, trade activities did not resume right after the first 30 days suspension of entertainment activities but rather 100 days after 13 Oct 2016. Thus 2QFY17 may still reflect some weakness.
- On the other hand, the NAB segment started their activities after the first 30 days.
- Given the total savings of ~THB600-700m from advertising and promotion (A&P) across all segments, promotions will now go on as initially planned, particularly as consumer sentiment returns.
- In addition, we understand that there has been no significant change to market share for both Spirits and Beer, while market share for NAB’s major brands (Oishi, Est, Crystal) generally improved.
Beer on steady path
- Notably, Beer’s gross profit margin was at a high of 23% (vs. average of 18.8%-21% in the last two FY); it could be sustainable as it maintains decent bottle return rates and lower raw material costs.
- With regards to competition, management believes there has been minimal impact and will continue to work on initiatives to maintain its market share.
Maintain BUY against relatively positive economic backdrop
- According to OCBC Treasury Research, Thailand boasts strong fundamentals in its tourism industry, domestic consumption and investment trends while it still enjoys both monetary and fiscal space to support economic growth.
- Against a steady economic backdrop coupled with planned A&P, we expect overall earnings to return to stability. Maintain BUY with fair value estimate of S$1.01.