Thai Beverage - CIMB Research 2016-02-29: Powered by beer

Thai Beverage - CIMB Research 2016-02-29: Powered by beer THAI BEVERAGE PUBLIC CO LTD Y92.SI 

Thai Beverage - Powered by beer 

  • Maintain Add on Thai Bev, with an unchanged sum-of-parts target price of S$0.83. Immediate catalyst is evidence of the success of Chang beer. 
  • Key positive of 4Q was the surge in beer sales. 4Q beer sales (+50% yoy) jumped to a record 238m litres/quarter. Beer market share leaped from 30% (3Q) to 38%. 
  • Beer leads the charge. Other divisions did not do so well. 4Q spirits sales saw contraction yoy. Non-alcoholic drinks EBITDA losses widened qoq. 
  • It guides that beer continues to do well in Jan. Non-al losses to narrow in 2016. 

■ Beer is doing very well, has gained market share 

  • Management explained that strong 4Q beer sales were not due to channel restocking effect. The new Chang bottle was launched on 19 Aug and restocking impact was over by 3Q. 
  • The reality is, customer feedback was good, domestic sales surged and market share gains have come at the expense of Leo. 
  • In fact, Thai Bev has actually kept channel inventory relatively light to ensure the freshness of beer stock. 

■ Beer: Reaction by competition 

  • With the new bottle, the price differential between Leo and Chang has narrowed (from THB4-5 two years ago) to just THB1 for the big bottles. Small bottles are at price parity. Leo is not cutting retail prices but has increased trade rebates, which is effectively a price cut. 
  • Management does not believe that the beer fight this round centers around price, but thinks it is possible that Boon Rawd will react in some manner. 

■ Spirits: More weakness in brown spirits for industry in 4Q 

  • Spirits saw more weakness. Previously, 3Q spirits sales flattened to no growth. In 4Q, sprits saw sales contract 2% yoy on a similar quantum of volume declines. Management attributes the weakness to brown spirits. 
  • Industry data have shown that brown spirits sales were -1% yoy for the full year but were -5% for the 4Q period. 

■ Non-alcohol: est volumes did not do well, plus various launches 

  • 4Q RTD (ready-to-drink) sales still did well at +17% yoy; we believe the launch of Jubjai has helped to pin back Ichitan. Sales of water also did well. The segment that showed weakness was carbonated soft drinks (CSD). 4Q CSD volumes had a rather glaring - 47% yoy performance. 
  • It seems like est cola and 100Plus did not perform well. Management guides that it has stabilised the decline in CSD volumes in Jan. 

■ Expect hike in excise duty this year 

  • It also expects alcohol taxes to be raised later this year, but does not expect major ill effects. Excise duties are now raised every year. 
  • Previously, it had passed on tax hikes through prices, but does not plan to do so this year given the weak macro economy. 

■ No additional benefits from Big C, no prelude to restructuring 

  • Management explained that TCC’s acquisition of Big C will not reap additional channel benefits. TCC already owns multiple hotels and Thai Bev’s business relationship with the hotels has been at arm’s length; the same will apply to Big C. 
  • Lastly, the change in financial year was to align with F&N and Sep was chosen to avoid peak periods in Dec. 
  • We have cut EPS by 3-5% on lowered F&N associate contributions.

Kenneth NG CFA CIMB Securities | Jonathan SEOW CIMB Securities | 2016-02-29
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.83 Same 0.83