Thai Beverage - CIMB Research 2015-12-09: Beer leaps forward, spirits provide cover

Thai Beverage - CIMB Research 2015-12-09: Beer leaps forward, spirits provide cover THAI BEVERAGE PUBLIC CO LTD Y92.SI 

Thai Beverage - Beer leaps forward, spirits provide cover 

  • The investment thesis of Thai Beverage was all about an aspiring regional F&B player, with ambitions funded by the free cash flow of its spirits monopoly business. 
  • Beer has shown promising signs early in 2015, as prior rebranding efforts have culminated in price hikes that was closed Chang’s prices to key competitor Leo. 
  • 2016 will show the effect of the rebranding effort to collapse sub-brands into one and launch Chang globally. 
  • 100Plus sales in Thailand should gain traction and help gain CSD market share. 
  • Our only worry is initial signs of weakness in spirits, a staple product. Maintain Add, with unchanged sum-of-parts target price of S$0.83 

■ Beer has shown promising signs in 2015 and will go global in 2016 

  • 3Q beer sales was understandably weak because of a rebranding effort. Prior to that, beer sales and profitability was consistently improving, on the back of hiked prices, better logistics and growing export sales. 
  • The collapsing of four sub-brands into one is part of its plan to build a single, global brand. 2016 will see the execution of plans to launch Chang Classic into Singapore, Hong Kong, the UK, US and Australia. 

■ Non-alcoholic should also gradually do better 

  • Non-alcoholic should gradually do better. There were initial positive signs for 100Plus launch in Thailand in 1H15, but that fizzled out in the seasonally weak 3Q. A quarter should not be deemed as a trend. 
  • Over time, if 100Plus does well in Thailand. It will help Thai Bev achieve dominance in the carbonated soft drink (CSD) market as well. 
  • Better utilization of Serm Suk’s currently under-utilised capacity, will shore up profits. 

■ Spirits is our new concern, albeit minor at this stage 

  • A new nagging concern for us, is yoy decline in spirits sales. Recent guidance is a tad worrying. Management guides that white spirits, previously a staple among farmers, has seen some sales weakness as farmers struggle after the removal of the rice subsidies. 
  • We will be watchful to note that this does not develop into something more menacing. 

■ Expansion plans ahead 

  • Beer looks like the main battering ram to drive growth ahead. The cultivation of other export markets for Chang Classic, would be beneficial for beers profitability, especially as Thailand’s domestic beer market is not growing in recent years. est cola looks like a long-drawn battle with little hopes of turning around soon. 
  • 100Plus in Thailand and Oishi in Malaysia look like better bets, though that will also take time. Lastly, more M&As on beer and non-alcholic drinks business outside of Thailand, is always likely

Kenneth NG CFA CIMB Securities | Jonathan SEOW CIMB Securities | 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.83 Same 0.83