Thai Beverage - CIMB Research 2017-02-15: Key 1Q17 analyst briefing takeaway ~ Consumption appears to be improving

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THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - Key 1Q17 analyst briefing takeaway ~ Consumption appears to be improving

• Stellar profits in the beer segment were mostly driven by improvements in gross margins, which should be sustainable for at least the next year.
• Overall consumption did shrink in the quarter, but market share for both spirits and beer remained largely unchanged.
• Management’s tone hinted at a recovery in consumption. Maintain Add.

Explaining beer’s strong showing

• Beer was the bright spot this quarter with net profit up 160% yoy. The strong showing was mostly driven by improvements at the gross level: 
  1. lower malt raw material prices, 
  2. lower bottling packaging costs and higher recyclable rate (now at c.60%) and 
  3. higher ASPs. 
• Management explained that it has locked in lower raw material costs and certain packaging costs for the next 12 months. Thus, we are confident that beer gross margins can be sustained in the 23% range (vs. 17-20% historically).
• On market share, Chang remained unchanged at c.40%. Management’s goal is still for Chang to reach the top position by 2020 with a 45% market share.

Competition in the beer market unlikely to have a big impact

• When asked about competition, management shared that rival Boon Rawd’s newly launched U beer has not taken off. The initial feedback on taste is that U beer is rather mild and Thaibev has not seen consumers switch from Chang to U beer.
• Thaibev has also taken the initiative to ramp up its social media marketing efforts in a bid to gain further market share and dwarf U beer’s entry; especially since the initial marketing efforts from U beer has been through social media, targeting university students.

Spirits: down-trading trends have abated

• Recap that in the previous two quarters, consumers were trading down to lower ASP white spirits from brown spirits amidst a tough consumption environment. However, management now sees this down-trading trend stabilising. 
• Consumption appears to have bottomed out and should pick up from hereon, in our view.
• Management also explained that the weak spirits volumes (-10.8%) in 1Q17 were a result of the mourning period. Market share, in fact, remained stable.

Update on corporate restructuring and M&As

• Management clarified that the long-awaited corporate restructuring of Fraser and Neave, Limited (F&N) and Frasers Centrepoint Limited (FCL) should be completed this year.
• On M&As, management remained mum about the details. However, we do not rule out a sizeable acquisition, especially as gearing levels are relatively low (current net debt/EBITDA c.1x, with capacity to increase to 4x, according to management).

Maintain Add, consumption patterns improving

• We remain positive on the group’s long-term merits and believe Chang is on track to become the market leader, which could re-rate the stock. 
• Maintain Add with an SOP-based target price of S$1.07.

Jonathan SEOW CIMB Research | http://research.itradecimb.com/ 2017-02-15

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.070 Same 1.070