Thai Beverage (THBEV SP) - UOB Kay Hian 2017-05-15: 1Q17 Prolonged Impact From Mourning Period; Weak Results But Still On Track

Thai Beverage (THBEV SP) - UOB Kay Hian 2017-05-15: 1Q17: Prolonged Impact From Mourning Period; Weak Results But Still On Track THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage (THBEV SP) - 1Q17: Prolonged Impact From Mourning Period; Weak Results But Still On Track

  • THBEV’s 1H17 net profit dropped 2.2% yoy as alcohol consumption fell due to continuing impact from the mourning period. 
  • An excise tax hike is expected in Sep 17 but THBEV should see no impact as it can pass through the cost. 
  • We keep our earnings forecasts with a 3-year earnings CAGR of 9%. 
  • M&A is on track while a restructuring is awaiting. Maintain BUY. Target price: S$1.09.



WHAT’S NEW


Weak performance in 1H17 on prolonged mourning period. 

  • Thai Beverage’s (THBEV) 1H17 net profit was Bt14.3b, down 2.2% yoy, as sales declined 8.4% yoy to Bt97.2b. Spirits sales volume dropped 7.7% yoy and beer sales volume fell 12.2% yoy.
  • Alcohol consumption dropped significantly since the mourning period started in Oct 16 and most entertainment events were cut. Furthermore, the high sales volume last year was partially due to inventory stock-up from the agency’s speculation of an excise tax hike in Jan 16, thereby setting a high base in 1H16. 
  • SG&A-to-sales increased 1.6ppt to 15.4% as most of THBEV’s advertising and promotions were launched as planned but the revenue base was lower. 
  • The only positive in 1Q17 was gross margin which rose 2.1ppt to 30.7%, mainly due to lower beer packaging cost with the launch of green-bottle Chang beer.

Expect earnings proportion in 1H17:2H17 at 50:50. 

  • 1Q17 net profit is still in- ine with our expectation, accounting for 50% of our full-year forecast. Although 1H is normally stronger than 2H, but for 2017, we expect net profit in 2017 to be evenly split in 1H17:2H17 due to the large impact from the mourning period in 1H17. 
  • We keep our forecast unchanged at 9% CAGR earnings growth in 2016-19.

Excise tax hike expected in Sep 17. 

  • The new excise tax is expected to be announced and start from Sep 17. As THBEV is usually be able to pass through its cost to customers, the higher excise tax should not have impact on gross margin as THBEV could usually increase selling prices more than the increase in tax. 
  • Sales volume could also increase in 4Q17 before the actual tax hike due to stocking up from agencies.


STOCK IMPACT


Restructuring of investment in FCL and FNN. 

  • We are still waiting to see the restructuring in THBEV. 
  • As its target is to have a more focused portfolio on the food and beverage business, THBEV would divest its FCL stake while adding more shares in FNN.

M&A deal on track. 

  • The M&A is also continuing in line with THBEV’s goal which is to have more income sources outside of Thailand. 
  • The recent deal was the acquisition of stake in Vinamilk, Vietnam’s largest dairy company, through THBEV’s 28%-owned associate FNN. FNN recently acquired another 1% in Vinamilk, raising its stake in Vinamilk to 18.7%. We expect FNN to further increase its stake in Vinamilk and this should add more contribution to THBEV in the long term but also expect higher financing cost.


EARNINGS REVISION/RISK

  • None.


VALUATION/RECOMMENDATION


Sum-of-the-parts target price of S$1.09. 

  • We value: 
    1. the spirits business at 17x EV/EBITDA, in line with global peers; 
    2. the beer business at 15x EV/EBITDA, a premium to the global peers’ average of 13.7x as we see THBEV’s beer business is currently in a strong uptrend; 
    3. the NAB business at 3x EV/sales, a discount to peers’ 3.7x as THBEV’s NAB business is still loss-making and a recovery would take time; and 
    4. the food business at 13x EV/EBITDA, in line with local peers’. 
  • FCL and FNN, which THBEV owns 28% each, are valued based on their latest market value. 
  • THBEV’s current PE at 20.4x is still lower than that of global spirits peers’ average of 24.3x 2017F PE, 22.9x for beer companies and 23.2x for NAB companies.




Kingpai Koosakulnirund CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-05-15
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.090 Same 1.090



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