Thai Beverage Public Company (THBEV SP) - DBS Research 2017-08-14: On Track For Stronger Y-o-y Growth

Thai Beverage Public Company (THBEV SP) - DBS Vickers 2017-08-14: On Track For Stronger Y-o-y Growth THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage Public Company (THBEV SP) - On Track For Stronger Y-o-y Growth

  • Thai Beverage's 3Q17 headline profit surged, helped by valuation gains; core profit with expectations.
  • YTD performance tracking with estimates; project 4Q17F to show stronger y-o-y growth.
  • Details on KFC deal scarce given non-disclosure prior to completion.
  • Maintain BUY, TP unchanged at S$1.07.



What’s New 


3Q17 results within expectations. 

  • ThaiBev registered 3Q17 core net profit of THB6.8bn (+15% y-o-y) on the back of THB45.3bn revenue, which was flat y-o-y. 
  • Headline net profit surged to THB15.3bn, but this was mainly due to a fair valuation gain of THB8.5bn. 
  • The one-off gain was from its associate, Fraser and Neave Ltd (FNN), which recognised a gain on its financial assets (Vinamilk).

Group revenue flat on subdued sentiment y-o-y. 

  • As expected, group revenue was flat on subdued sentiment and effects of the mourning period in Thailand. All its business segments registered lower revenue vis-à-vis 3Q16, save for Spirits, which posted positive revenue growth of 4.5% y-o-y to THB25.5bn. While the growth in Spirits was partly attributed to a low base effect last year, we continue to believe that consumption will gradually revert back to normalcy as per our earlier views. (See report: Thai Beverage Public Company: Effects of mourning period will eventually pass, 29 June 2017
  • Group operating profit slipped marginally by 2% y-o-y to THB6bn, from THB6.1bn the same period last year, but this was more than mitigated by stronger contribution from its associates (FNN and Frasers Centrepoint Limited).
  • Associates’ contribution surged by 156% y-o-y to THB1.77bn in 3Q17, from THB0.69bn last year.

Spirits posted 4.3% volume increase. 

  • Despite a low season, Spirits registered 4.5% y-o-y revenue increase to THB25.4bn on the back of 4.3% increase in volume. This was partly attributed to a low base effect last year (in 3Q16) which was impacted by destocking by distributors/ agents. Net profit for the segment increased by 2.4% to THB4.76bn.

No significant impact from Carabao. 

  • Management is monitoring the response to the launch of white spirits by Tawandang, which is distributed by Carabao. It was noted that there was no significant impact as yet.

Beer profits dipped but holding on to market share. 

  • The Beer segment registered a dip in revenue of 7.1% y-o-y to THB13.8bn, with sales volume down by 8.8%. This was attributed to the continued effects of the mourning period.
  • While Beer gross margins improved by 1.7ppts to 23.7%, net profit for the segment in 3Q17 dipped to THB606m (- 34% y-o-y) on lower sales, coupled with higher selling and distribution expenses (SG&A). The higher SG&A was a result of spending on the relaunch of Federbrau, as well as Chang.
  • Management indicated that market share slipped by about 1ppt and hovered just below 40%, of which part of it was lost to U-beer (0.3ppt) and partly to Singha (0.6ppt) given the latter’s shift in pack type from 50cl to 62cl bottles.

Clarification on variances in Bank of Thailand beer volumes data. 

  • Management clarified that based on trade surveys, beer consumption has shown a decline y-o-y for the quarter, which differed from the growth from Bank of Thailand’s (BoT) statistics. It was explained that BoT’s statistics referred to production volumes. 
  • ThaiBev’s management has maintained that its stock level remains normal, and is not exceptionally high.

Old beer is not good beer. 

  • We believe the above could imply stock levels for its competitors are high. While there could be concerns for eventual price discounting to clear stocks eventually, we opine that ThaiBev could then utilise this opportunity to hold its fort to maintain its price and brand image. This should help widen the brand’s perception against competition as old beer is not good beer. Although this could undermine market share for Chang in the immediate term, we view it as positive for the overall brand and profitability over the medium and longer term.

Non-Alcoholic Beverages record wider losses in 3Q17 though YTD was lower. 

  • NAB segment registered lower sales revenue, mainly due to lower volumes. Losses widened to THB215m, from THB174m a year earlier. On a YTD basis, losses narrowed to THB726m, down from THB992m, and is tracking our estimates of a net loss of THB1.16bn for FY17F.
  • Details on KFC deal still scarce. There were minimal details on the KFC deal shared as the transaction has yet to be completed. Management did share that the operations are profitable, and even if fully debt funded, it will be EPS accretive. 
  • As highlighted in our earlier note, while the proposed transaction took us by surprise, we believe this is part of the group’s strategy to diversify outside of alcoholic beverages. (See report: Thai Beverage Public Company (THBEV SP) - A Surprise Move On Fried Chicken)
  • We also note that its current head of Food segment, Ms Nongnuch Buranasetkul, was previously from Yum Restaurants International (Thailand) Co., Ltd, prior to joining the ThaiBev group.


Outlook 


4Q17F should show a stronger y-o-y growth. 

  • While 9M17 results registered a meagre 3% y-o-y, we believe 4Q17 could turn in a better y-o-y performance. ThaiBev’s 9M17 operating and core net profit stood at 76% and 80% of our forecasts, respectively. 
  • We expect 4Q17F to show a stronger y-o-y growth vs last year on the back of trade loading in anticipation of an excise tax increase in Sep, and stronger associates contribution.

Maintain BUY, TP: S$ 1.07. 

  • We maintain our BUY recommendation on ThaiBev and, as per our per our rhetoric over the past 10 months, believe that uncertainties surrounding slower consumption in Thailand from the mourning period is temporary. Any pullbacks in share price is a chance to accumulate the counter, in our view.
  • On a longer-term horizon, we believe its ongoing transformation into a regional beverage player will help to further re-rate the counter. Its associate, Fraser & Neave Ltd (FNN) now owns 18.74% in Vinamilk, and has stated an intention to increase this further




Andy SIM CFA DBS Vickers | Alfie YEO DBS Vickers | http://www.dbsvickers.com/ 2017-08-14
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.070 Same 1.070



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