Thai Beverage Public Company (THBEV SP) - DBS Research 2017-05-12: Impact of Mourning Period Greater Than Anticipated

Thai Beverage Public Company (THBEV SP) - DBS Vickers 2017-05-12: Impact of Mourning Period Greater Than Anticipated THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage Public Company (THBEV SP) - Impact of Mourning Period Greater Than Anticipated

  • 2Q17 below expectations on lingering effects of mourning period.
  • Interim DPS of THB 0.20 declared.
  • Expect results to catch up in 2H17.
  • Maintain BUY, TP unchanged at S$1.09.

What’s New 

2Q17 results showing impact of mourning period. 

  • After a strong 1Q17, ThaiBev’s 2Q17 results were below expectations with net profit down by 23.4% to THB6.6bn. This was largely due to subdued sales arising from the mourning period, coupled with higher marketing expenses postponed from 1Q17. 
  • Associates income also dipped by 52% y-o-y to THB532m.

Interim DPS of THB 0.20 declared. 

  • Notwithstanding the drop in profit, the Group declared an interim DPS of THB0.20, similar to 1H16. 
  • Note that the Group changed its financial year end to Sep from Dec, and 1H16 represented the period from Jan 2016 to June 2016.

Group revenue dipped on weaker beverage sales. 

  • Arising from effects of the mourning period, group revenue dropped by 8.7% to THB50.3bn due mainly to lower sales of its beverage business, offset partially by increase in food business. 
  • The group’s gross margin improved to 30.9%, from 29.4% during the same period a year ago, due to improvements in margins across its business segments. 
  • EBIT margins, however, contracted by 2.3ppts to 14.7% in 2Q17 on the back on lower revenue and higher selling and administration expenses. As a result, EBIT dropped by 20.6% y-o-y to THB7.4bn in 2Q17.
  • Spirits registered 7.5% y-o-y decrease in revenue to THB28.9bn, while volumes dipped by 4.7% to 154.4m litres. This was attributed to decline in consumption during the mourning period, coupled with a high base effect from same period last year where agents stocked up in inventory in anticipation of excise tax increases.
  • Beer revenue saw a decline of 13.9% y-o-y to THB15.5bn as volumes dipped by 16.3% to 228.8m litres. The decline was attributed to reasons similar to Spirits. As a result of lower volumes and higher advertising and promotional expenses postponed from 1Q17, beer’s net profit dropped to THB923m, from THB1,634m the same period last year.
  • Non-Alcoholic Beverages’ revenue declined by 3.2%, though this was mainly due to the cessation of a production and distribution agreement for an OEM sports drink. As a result of higher advertising and promotional expenses, along with a lower revenue, net loss for the segment widened to THB272m, from THB199m a year ago.

New excise tax expected to take effect from Sep, could lead to bump up in sales on trade loading prior to that in 4Q17.

  • With the recently draft Excise Tax Act being publicised, it is widely expected that this will be effective this September. As per previous expectations, the new excise tax will change from ex-factory price to one based on retail price before VAT. 
  • According to media reports quoting wholesale distributors, the new excise tax is likely to increase a bottle of beer by around 4% to 5%. As per previous instances prior to excise increases, this could result in distributors and agents stocking up prior and cause a surge in sales volume for the group.

Our views 

Maintain BUY, TP: S$1.09. 

  • Whilst 2Q17 results was a dampener, and could cause share price to weaken in the immediate term, we reiterate our longer term positive view on the counter. 
  • We believe the effects was largely due to the mourning period and should normalise over time, and sales of beverages should pick up again. Furthermore, we expect stronger contribution from its associates (F&N and Frasers Centrepoint Limited (FCL)) in 2H17. 
  • We reiterate our BUY recommendation on ThaiBev with an unchanged sum-of-parts TP at S$1.09.

Further catalysts lies in corporate restructuring of its stakes in F&N, and the potential monetisation of FCL. 

  • At current market price of FCL, its stake is worth c.S$1.57bn. 
  • We maintain our view that F&N will be the vehicle to pursue inorganic growth opportunities outside of Thailand and the Spirits category, and potential acquisitions could provide an opportunity for ThaiBev to further consolidate its stake in F&N.

Andy SIM CFA DBS Vickers | Alfie YEO DBS Vickers | 2017-05-12
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.090 Same 1.090