Thai Beverage Public Company (THBEV SP) - DBS Research 2017-11-24: Closure To A Slow Year Marked By Mourning

Thai Beverage Public Company (THBEV SP) - DBS Vickers 2017-11-24: Closure To A Slow Year Marked By Mourning THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage Public Company (THBEV SP) - Closure To A Slow Year Marked By Mourning

  • 4Q17 results in line; showing y-o-y improvement.
  • Moving on to a better year ahead post mourning period.
  • Final DPS of THB0.47, totaling THB0.67 for FY17.
  • Reiterate BUY, TP: S$1.07; ThaiBev remains as our top large cap consumer pick.

What’s New 

FY17/ 4Q17 results within expectations. 

  • ThaiBev’s FY17 headline net profit surged 82% y-o-y to THB34.5bn, partly due to one-off fair value gains (THB8.5bn) recognised by its associate FNN for its investment in Vinamilk. Excluding this and comparing on a similar 12-month period for FY16, core net profit was up by 4.6% y-o-y to THB26bn, which is within our expectations. This was despite a relatively slow first 9M17 due to the mourning period in Thailand.
  • 4Q17 operating profit surged by 73.5% y-o-y to THB6.4bn on the back of 23.4% increase in revenue to THB47.5bn. The strong surge in operating profit is in line with our earlier expectations, given the anticipated trade loading prior to excise duty increases in September. 4Q17 net profit at THB5bn registered a smaller growth vis-à-vis operating profit due to losses registered by its associates in the quarter.

Final DPS of THB0.47 proposed. 

  • A final dividend per share (DPS) of THB0.47 was proposed. Including interim DPS of THB0.20, total DPS for FY17 amounted to THB0.67 (vs FY16: THB0.60), implying a payout ratio of 65% on core profits (excluding fair value gains).

Group revenue played catch up in 4Q17 registering 23% growth. 

  • Revenue in 4Q17 registered strong growth of 23.4% y-o-y and 5% q-o-q to THB47.5bn, mainly driven by all business segments, despite being a seasonally weaker quarter. This, in our view, was largely due to trading loading by distributors in anticipation of excise increases, and in part on expectations of recovery in consumer sentiment.

Spirits posted strong 38% net profit growth in 4Q17

  • Spirits posted strong 38% net profit growth in 4Q17, with segment net profit at THB5bn. Revenue was up by 35% y-oy to THB28.6bn, on the back of 28.7% increase in volume to 154m litres, along with an estimated 4.8% implied ASP increase. In FY17 (and comparing to similar 12-month period a year back), revenue for Spirits increased by 2.6% to THB106.5bn, while net profit grew by 2.1% to THB20.4bn.
  • Operating profit margins slipped marginally by 30 bps to 23.3% in FY17 due partly to higher advertising and promotional expenses.

Beer saw dip in profit but maintained share. 

  • The beer segment experienced a dip in revenue of 4.7% to THB57.3bn in FY17, led by a 6.8% drop in sales volume to 8.45m hectolitres, mitigated partially by higher ASP.
  • Notwithstanding the lower volume, gross profit increased by 6.4% for the year to THB13bn, due to lower packaging and raw material costs. Net profit for the segment, however, dipped by 4% to THb3.13bn due to higher advertising and promotion expenses.

Non-Alcoholic Beverages (NAB) posted smaller losses. 

  • In line with our expectations, the NAB segment posted lower losses, amounting to THB855m for FY17, which was an improvement from a loss of THB1,570m over the period a year ago. 
  • The improvement was helped by better gross profit due to lower packaging costs, coupled with lower A&P expenses. As such, this segment turned EBITDA positive for the year; and we continue to maintain our view that losses should narrow and achieve net profit by FY19F.

Gearing remains healthy, even with recently announced proposed acquisitions. 

  • The Group’s gearing continues to improve with net debt to equity ratio at 0.23x as of 30 Sep 2017, an improvement from 0.33x a year ago. 
  • We estimate that even with the recently announced proposed acquisition of the KFC franchise in Thailand (c.THB11bn) and 75% stake in Grand Royal whisky in Myanmar (c. US$742m), the Group’s gearing would only increase marginally to 0.31x as of end FY18F.

Our views 

Maintain BUY, TP: S$ 1.07. 

  • We reiterate our BUY recommendation on ThaiBev and it remains as one of our large cap top picks in the consumer sector. We expect performance to improve on the back of recovery in consumption, post a year-long mourning period. 
  • We have been advocating accumulation upon share price pullbacks; and, continue to maintain this stance. On a longer-term horizon, we believe its ongoing transformation into a regional beverage player will help to further re-rate the counter.
  • We are retaining our forecasts and TP. A post-earnings conference call will be held on the evening of Friday, 24 November; and, we will update with further adjustments, if any, thereafter

Andy SIM CFA DBS Vickers | Alfie YEO DBS Vickers | 2017-11-24
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.070 Same 1.070