Thai Beverage Public Company - DBS Research 2016-11-21: Impacted by higher opex

Thai Beverage Public Company - DBS Vickers 2016-11-21: Impacted by higher opex THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage Public Company - Impacted by higher opex

  • 3Q results lower due to higher opex, offset partially by higher revenue and gross profit.
  • Earnings for the nine months of this year rose 14% compared to the same period last year.
  • Final DPS of THB0.40, equates to 80% payout.
  • Retain BUY, TP: S$1.09.

What’s New 

Change in financial year to Sep, from Dec. 

  • For FY16, Thai Beverage Public Company (ThaiBev) reported 29% y-o-y drop in headline net profit to THB18.9bn on revenue of THB139.2bn (-19%) compared to THB172bn (FY15). 
  • The decline was mainly due to the change in its financial year end to Sep, from Dec; and, hence FY16 figures are based on 9 months instead of 12 months.

Final DPS of THB0.40 proposed. 

  • Including interim dividend of THB0.20, total DPS for FY16 amounted to THB0.60, marginally below FY15’s THB0.61. While lower compared to FY15, we note that the DPS was based on a 9-month period, compared to 12-months in FY15, thus equating to a payout ratio of 80%, compared to 58% for FY15.
  • Comparing results based on a like-for-like 9-month period, ThaiBev would have reported 15% y-o-y revenue growth, and a 7% drop in net profit compared to 9M15. The drop was mainly due to an absence of one-off disposal gain recognised by its associate, F&N, arising from the disposal of Myanmar Brewery Limited (gain of THB3.8bn). Excluding the gain, we estimate net profit would have increased by 13.9% instead.

3Q16 results slightly below on higher operating expenses.

  • For the quarter to Sep 2016, ThaiBev’s revenue increased by 5.6% y-o-y to THB38.5bn, while operating profit fell by 15.2% y-o-y to THB3.7bn. The drop in operating profit arose from higher than expected selling and administrative expenses causing operating margins to drop to 9.6%, from 12% a year ago. This was despite a 110 basis points improvement in the group’s gross margins to 30.2%. 
  • We suspect high administrative expenses arose from accruals of staff and other costs arising from the change in financial year end.

3Q reported net profit fell by 43% y-o-y to THB 4.6bn.

  • 3Q15 net profit was a high base arising from the recognition of the one-off disposal gain recognised by F&N (THB3.8bn). Excluding that, net profit would show a growth of 9.8% yo-y.

Revenue growth across all segments in 9-month period; Beer was most robust. 

  • Despite the headline decline in net profit, sales revenue was relatively robust with all segments reporting y-o-y growth. Spirits segment eked out a marginal growth of 0.1% as volume growth of 2.3% y-o-y was negated by trading down to lower priced spirits.
  • Beer revenue showed the most robust growth of 62.3% y-oy for the 9-month period to THB44.4bn arising from the relaunch of the Chang beer brand. Beer volumes rose by 54.5% with a marked increase in market share riding on the success of the relaunch. During the year, ThaiBev raised selling prices of Chang Beer brand.
  • Non-Alcoholic Beverage (NAB) also registered an increase of 6.8% in revenue due to increase in sales volume of drinking water, carbonated soft drinks, ready to drink teas and Jubjai.
  • While the NAB segment was still loss-making, it registered lower losses in FY16 (for the 9-month period) of THB1.08bn, down from loss of THB1.5bn (or loss of THB1.15bn including gain from sale of building and land). We expect this trend to continue, and we project this segment will be profitable only in FY19F.

Net debt to equity healthy. 

  • The group’s net debt stayed stable at 0.33 as at end Sep’16. We expect this to improve going forward, given its cashflow generative operations, particularly Spirits, coupled with expectations of improvement from its Beer and NAB segments.

Our views 

Impact from mourning period likely to be temporary. 

  • With the recent passing of Thailand’s King Bhumibol and the mourning period, this could have some impact on ThaiBev’s sales performance. However, in our view, we believe the impact is likely to be temporary and limited. 
  • Based on our sensitivity analysis, we estimate every 1% change in Spirits and Beer sales volume would have 0.9% impact on our FY17F earnings.

Trimmed forecasts by 4-8%. 

  • We trimmed our earnings forecasts by 8%/ 4% for FY17F/18F taking into account lower sales volume and ASP assumptions for Spirits and Beer, coupled with lower profits from its associates, F&N and Frasers Centrepoint Limited (FCL).

Still our long term conviction call, BUY, TP: S$1.09.

  • Although 3Q16 results were marginally below our expectations, this arose from the higher-than-expected operating expenses, which we believe could be a temporary effect arising from the closure of the financial year end. In our view, we expect the group to deliver a stable performance in the medium term. Furthermore, we expect to see the group gradually transform into a regional beverage player.
  • A catalyst could be the restructuring of its shareholding in F&N, along with the pursuit of inorganic opportunities, aiding in overall growth for the group. 
  • Our sum-of-parts based TP is revised to S$1.09.

Andy Sim CFA DBS Vickers | 2016-11-21
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.09 Down 1.130