Thai Beverage - RHB Invest 2017-08-14: An Uplift From Spirits

Thai Beverage - RHB Invest 2017-08-14: An Uplift From Spirits THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - An Uplift From Spirits

  • Reiterate BUY on ThaiBev and a SGD1.10 Target Price (18% upside) on the back of volume recovery in the spirits division, which is the group’s largest contributing segment. 
  • Excluding the one-off gain of THB8.5bn from the F&N’s fair value gains on financial assets, 3QFY17 results were in line with our expectations. Its 9MFY17 PATMI made up 80% of our full-year estimate. 
  • We expect 4QFY17F to see positive growth in spirits and beer volumes as we think trade agents are likely to stock up on inventories prior the excise tax hike.

Uplift of spirit volumes. 

  • After three quarters of declining volumes, spirit consumption in Thailand has finally made a turnaround in 3QFY17 (Sep), with a 4.3% YoY growth in volume and 4.5% YoY growth in revenue. 
  • Management attributed this to the low base of spirits sales in 3QFY16. We think 4QFY17F would see a continuation of the positive growth trajectory as we expect trade agents to stock up on inventory before the excise tax hike in Sep 2017. 
  • The spirits division is Thai Beverage’s (Thaibev) largest segment, contributing 57% to topline and 82% to EBITDA, and it has a 80% market share in Thailand’s spirits industry. Therefore, an uplift in spirit volumes would continue to bode well for the group.

Thaibev has maintained its 40% share in the beer market despite keen competition. 

  • This was aided by the launch of Federbrau beer, which gained a 0.5% market share. However, we note that consumption of beer remained slow in 3QFY17. Management guided that the positive beer consumption statistics released by the Bank of Thailand are based on production figures. According to a study by AC Nielsen, beer demand continued to decline by 10% in 3QFY17.
  • Trade consumption continues to be soft in Thailand as seen from weaker sales in Thaibev’s beer and non-alcohol beverages in the food businesses. However, the mourning period of the late King Bhumibol Adulyadej is coming to an end. 
  • Moving into FY18F, we expect to see a step-up in beer volumes and a recovery in on-trade consumption on the back of pent-up demand.

Reiterate BUY and SOP-derived TP of SGD1.10. 

  • We keep our forecasts and TP unchanged. We note that the group has maintained its market share in its key brands across all divisions in spite of a challenging market environment. 
  • A recovery in consumer sentiment would be positive for the stock. 
  • Key risks include intensifying competition in the spirits space from a new entrant, Tawandang 1999, and any further retaliation move by Singha Corporation Co Ltd.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-14
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.100 Same 1.100