CIMB Securities 2015-08-14: Thai Beverage - 2Q15 Not Impressive; Payback time for alcohol. Maintain ADD.


Payback time for alcohol 

  • 2Q15 was not as impressive a quarter as 1Q. With a sports tax implemented at end-1Q and effects of channel stockpiling boosting 1Q15 alcohol sales, 2Q was payback time. 
  • Spirits’ and beer’s 2Q sales performance and EBITDA was not strong, but this was expected. 
  • On a 1H15 run-rate basis, profitability still tracked ours and Street expectations, i.e. in-line. 1H15 net profit made up 49%/51% of ours and consensus estimates. This was achieved albeit on the back of some (Thb446m) non-core gains from Serm Suk. 
  • We maintain our estimates, SOP target price (S$0.87) and our Add rating. 
  • Catalyst for the stock comes from sustained turnaround in beer and upside surprises from non-al. 

Payback effect for alcohol 

  • 2Q spirits sales was 4.7% lower yoy, as volumes shrank 3.4% yoy. 
  • The basis for comparison was not the most accurate as 2Q15 was a payback quarter, after channel stockpiling in 1Q15. 
  • Sprits’ gross profit (-2.4% yoy) and EBITDA (-6.7% yoy) was similarly lower, on the back of lower sales. 
  • The payback effect was evident in beer too. 2Q beer sales volume was 4% lower yoy, though sales value was flat, after an adjustment in sales price. 
  • Beer EBITDA (+67% yoy) growth reflects the closing of Chang’s price gap with competitors. On a qoq basis, beer did not show the strong growth seen in the previous two quarters though. 
  • Overall, it was a satisfactory quarter for the alcohol businesses. 

Non-al helped by new products, 

  • 2Q15 non-alcoholic beverages (non-al) sales grew 2.4%, mainly from the effect of higher sales volume of drinking water and the launch of new products, 100Plus and Jubjai. 
  • Outside of water and new products, trends were less encouraging. There was a decrease in sales volumes of carbonated soft drinks (est cola), ready to drink tea and herbal drinks, suggesting a difficult market. 
  • Although non-al EBITDA turned positive this quarter, this included non-core gains on property sales from Sermsuk - nothing to get excited about. 
  • Excluding non-core gains, non-al net losses (2Q:-Thb608m vs 1Q:-Thb374m) was actually wider on increased A&P expenses, due to the launch of new products. 

Gradual recovery in Thai economy 

  • Management guided that Thailand’s tourism sector has seen a sharp increase in the number of tourist arrivals, though private consumption trends and farm income are not positive. 
  • Guidance is summarised as a slow recovery.

Kenneth NG CFA | Jonathan SEOW CFA | CIMB Securities 2015-08-14
ADD Maintain ADD 0.87 Same 0.87