Thai Beverage - CIMB Research 2016-05-13: Blowout quarter!

Thai Beverage - CIMB Research 2016-05-13: Blowout quarter! THAI BEVERAGE PUBLIC CO LTD Y92.SI 

Thai Beverage - Blowout quarter!

  • We had expected beer to be the single bright spark covering up for some slippages in spirits and non-al. Beer certainly did well, but so did all the other divisions!
  • 1Q net profit (Thb8.6bn) made up 34%/35% of ours/consensus full-year forecasts. Despite being seasonally stronger, this was a huge beat.
  • Spirits had unexpected volume growth. Beer chalked up further market share gains and a margin pickup. All other divisions did well on specific division factors.
  • Our hiked EPS (14-17%) raises our SOP target price to S$0.92. Maintain Add.

Big earnings beat

  • 1Q16 profit beat expectations handsomely on: 
    1. unexpected pick-up in spirits volume; 
    2. better-than-expected beer volumes, as market share momentum continued; 
    3. record margins for beer as operating leverage kicked in; and 
    4. cost control in non-al and food, to ensure that all four divisions were EBITDA-positive in 1Q. 
  • Other than the spirits positive that had some temporary effects, the rest all look like positives that could stay.

Spirits had some effects of pre-excise tax buying

  • Spirits sales rose 5%, as volume unexpectedly gained 4% yoy. 
  • Management guided this was partly due to the anticipation of an impending tax hike, after cigarette taxes had been raised in 1Q. 
  • Inventory levels in the channel have risen to 4-5 weeks, vs. a norm of three weeks. 
  • Pre-excise duty effects notwithstanding, spirits have been taking market share from both international brands and smaller provincial spirits.

Beer kept market share gain momentum, operating leverage show

  • Beer sales (+71% yoy), as volumes (+61% yoy), show the effect of the re-positioning since 3Q15. 
  • More importantly, beer market share continues to rise (4Q: 38%, 1Q: 40%). As sales grow, the effect of operating leverage is also kicking in nicely. 
  • Qoq, gross profit rose 38% and EBITDA +10%. Part of the reason for the improved margins is that the proportion of returnable bottles used has returned to normal. 
  • Thai Bev sees no effective countermeasure so far by competitor, Leo.

Non-alcohol beverages (non-al) did well on Jub Jai and water

  • Non-al’s EBITDA swung back to positive, on continued growth in JubJai (volumes +30% yoy) and water (volumes +20% yoy). 
  • Only carbonated soft drinks volume declined 6% yoy, as continued growth in est cola was offset by a large base of 100Plus sales in 1Q15 during its launch phase. 
  • Food saw sluggish sales growth, in line with the weak economy, but some operational re-org has thrown up cost efficiencies.

Maintain Add; blowout quarter will give legs to a short-term rally

  • We raise our estimates by 14-17% mostly on beer and spirits. The two main surprises in 1Q were beer profitability (as sales trend up) and spirits volume (which is a more temporary effect). 
  • With our hiked estimates, the current FY16 P/E of 16.6x does not look so steep once again
  • Our SOP-based target price is raised to S$0.92 after EPS increase. 
  • We believe the blowout 1Q performance will be a catalyst for the share price to rally post-results.

Kenneth NG CFA CIMB Securities | Jonathan SEOW CIMB Securities | 2016-05-13
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.92 Up 0.83