Thai Beverage - RHB Invest 2017-09-20: New Excise Tax In Place

Thai Beverage - RHB Invest 2017-09-20: New Excise Tax In Place Market Cap: USD16,975m THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - New Excise Tax In Place 

What’s New 

  • Over the weekend, Thailand implemented its new excise taxes on alcohol. The new tax is now levied based on the retail sales value and the percentage of alcohol content. 
  • Based on estimates by Bangkok Post, the new excise taxes would: 
    1. Increase the tax on a can of beer by THB0.50, and on a bottle of beer by THB2.66; 
    2. Raise the taxes on white spirits by THB0.84-3.49 per bottle; 
    3. Hike up the taxes on distilled spirits by THB8-30 per bottle.

Our View 

No immediate change to prices... 

  • According to Thai Beverage’s (Thaibev) management, the exact price adjustment is not certain yet. Consumers are also unlikely to see any immediate price changes in the market, as the Thai Government has disallowed retailers to raise prices straight away, since they should still have alcohol stocks that were taxed at previous rates. 
  • We anticipate the new prices to set in, in the next month or so.

… but any future changes to prices should be manageable for consumers. 

  • At the moment, a unit of Thaibev’s bottled Chang beer (620ml) is priced at about THB55, while its range of white spirits (625ml) is priced between THB70 and THB155. Its portfolio of brown spirits has prices around THB180-420 per bottle. 
  • According to Euromonitor, Thailand’s disposable income is expected to grow 3% YoY in 2017. As such, we think any change in prices should be manageable for consumers, since Bangkok Post’s estimate suggests that the new taxes are only about 2-3% higher than current prices.

Key risk lies in the beer market. 

  • In our previous conversation with the management, it guided that the positive data on beer volumes released by the Bank of Thailand is based on production figures. Meanwhile, the real demand for beer, based on a study by AC Nielsen, actually showed a 10% decline in 3QFY17 (Sep). 
  • We highlight that the production figures have further increased by about 20% YoY over the last two months. Thaibev’s management cited that the over-production was not from them. It believes that beer tastes change with time, and insists on maintaining the freshness and taste of its beer.
  • We think the over-production could come from its competitors who would like to take advantage of the lower excise tax before the hike last weekend. As such, the market could be flooded with slightly cheaper beer for the time being. If Thai consumers are not as discerning when it comes to the taste and freshness of beer, Thaibev may find it difficult to raise prices or may lose some market share if it raises prices in tandem with the excise tax hike.

Still positive on Thaibev

  • The spirits segment is Thaibev’s largest segment, contributing 55% to topline and 83% to EBITDA. 
  • The company has managed to outperform during historical changes in excise tax. While sales volumes of spirits typically dip YoY in the quarter after an excise tax hike, it usually normalises in the subsequent quarter. 
  • As Thaibev has a market share of over 80% for spirits, we believe that it would have no problem in passing on the cost to consumers. We expect it to chart a stronger performance in FY18, on the back of: 
    1. A recovery in alcohol consumption after the mourning period for the late King Rama IX is over;
    2. The potential expansion of its gross profit margin.
  • We maintain our BUY call and SOP-derived TP of SGD1.10 (21% upside).

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-09-20
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.100 Same 1.100