THAI BEVERAGE PUBLIC CO LTD
Y92.SI
Thai Beverage - 3QFY17 Consumption Soft But Better; Overall Lifted By Associates
- Thai Beverage's 3Q17 headline profit was lifted by valuation gains. Nevertheless, core net profit (+16% yoy) was within expectations. 3Q/9M formed 26%/80% of our FY17F.
- Consumption has not yet fully recovered and A&P was still high but strong associates contribution more than mitigated this and lifted group net profit.
- Maintain Add. Our SOP-based target price is intact at S$1.07.
Results were within expectations
- Group revenue growth was flat (-0.4% yoy) on still-weak consumer sentiment and lingering effects of the mourning period. Although not yet showing growth, this is much better than the 8-9% topline declines in the previous two quarters.
- By segment, spirits sales even grew 4.9% yoy while all other segments were still down. We remain confident that consumption will eventually recover.
- While revenue growth was flat, that for operating profit was a tad softer (-1.8% yoy). This was mostly due to still-high A&P expenses, driven by beer (relaunch of Federbrau).
- Nonetheless, a stronger-than-expected showing from associates (FNN/FCL) covered the gaps. 3Q group core net profit was therefore up 16% yoy, forming 26% of our FY17F. 9M formed 80% of our FY17F.
Spirits resumed growth, partly helped by previous year’s low base
- A big positive in this set of results was the growth in spirits sales by 4.9% yoy on the back of higher volumes (+3.7% yoy). The negative was that A&P remained high, somewhat against our initial expectations of a cutback given the weak consumption climate.
- Nonetheless, spirits’ EBIT growth was a positive 2.4% yoy.
Beer still dragged down by higher A&P; market share fairly stable
- Beer volumes were still weak (-8.4% yoy) and sales fell 7.1% yoy, mostly due to the effects of the mourning period. The positive was that gross margins continued to improve (3Q17: 23.7%, 3Q16: 22.0%), consistent with the group’s guidance earlier in the year on lower bottling and raw material costs.
- However, A&P remained elevated and EBIT margins fell to 4.9% in 3Q17 (3Q16: 6.8%). Management attributed this to the relaunch of Federbrau and Chang to a smaller extent.
- On market share, Chang was still fairly stable but dipped slightly (c.1% pt), now just below 40%. The slight market share lost was to U-beer (0.3% pt) and Singha (0.6% pt).
Little shared on recent KFC deal
- Management provided few insights into the KFC deal as the transaction has not yet been completed. Key takeaways included:
- operations were profitable, and
- the deal would be EPS accretive even if fully debt funded.
- As mentioned in our earlier note, we view the deal as a small positive given its EPS accretion but project little operational synergy with its existing spirits and beer segments.
Maintain Add; corporate action likely a bigger near-term driver
- Our SOP-based target price is unchanged at S$1.07. The longer-term thesis is still for Thaibev to evolve into a regional beverage player.
- While management refused to comment on the FNN/FCL restructuring efforts, we do expect this to be a positive share price catalyst.
- Other catalysts include M&A into Vietnam.
- Key downside risks include weaker-than-expected consumption.
Jonathan SEOW
CIMB Research
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http://research.itradecimb.com/
2017-08-14
CIMB Research
SGX Stock
Analyst Report
1.070
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1.070
