OCBC Investment 2015-08-25: Thai Beverage - Still positive in the long term.


Still positive in the long term 

 Tourism-related companies affected by bomb blasts. 
 Tourist arrivals had improved in 1H15. 
 Group’s alcoholic portfolio is defensive. 

Near-term pressure from concerns over tourism 

  • Last week's fatal explosion in Thailand drove concerns over the prospects for the country’s tourism industry. Local companies in the hospitality and airline industries inevitably saw share price declines, and are reportedly facing some postponement requests as well as cancellations in hotel reservations. 
  • This comes after an improvement in tourist arrivals for 1H15, as the number of foreign tourists was 29.5% higher YoY according to data from Bank of Thailand. The uncertainty for a sustained improvement here has raised concern over performance for Thai Beverage as well. 

2Q15 GDP data saw similar drags 

  • Thailand’s recently announced 2Q15 GDP growth of 2.8% YoY were slightly short of our OCBC Treasury Research expectations. Drags came from weakening exports and private consumption, with these factors expected to stay for 2H15. 
  • In addition to high household debt levels, private consumption was also affected by the severe drought in Thailand as the agriculture sector employs more than 40% of the country’s population. Nonetheless, the economy is seeing some support from growth drivers such as government spending on infrastructure (+24.7% YoY). In a bid to stir positive changes for the economy, Prime Minister Prayuth Chan-ocha had also declared a cabinet reshuffle last Thu with more than 20 positions involved. 

Long-term growth intact 

  • While there would be near term adverse impact on tourism levels, note that the group had previously shown earnings resilience despite lower tourist levels amid political unrest in 2014 for instance. 
  • A plausible factor is that Thai Beverage’s (ThaiBev) sales come from all provinces of Thailand, not just from cities popular with tourists. 
  • In addition, although the economy is expected to grow at a slower rate of 3.0%, ThaiBev’s recent 2Q15 results were in-line with our estimates, and its beer segment has continued to grow with improved profits. Thus while the group's share price has fallen on recent events coupled with the broader stock market rout, we think ThaiBev’s long-term growth remains intact with its generally defensive alcoholic portfolio. 
  • Maintain BUY with fair value estimate of S$0.83.

Jodie Foo | http://www.ocbcresearch.com/ OCBC Investment Research 2015-08-25
BUY Maintain BUY 0.83 Same 0.83