Thai Beverage (THBEV SP) - UOB Kay Hian 2017-11-27: Poised For A Strong FY18 Recovery

THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage (THBEV SP) - Poised For A Strong FY18 Recovery

THBEV’s FY17 adjusted earnings grew 4.6% yoy, helped by a strong 4QFY17 (+11% yoy) on the back of agent stockpiling prior to the excise tax in September.
Following the end of the mourning period, we expect a strong FY18 recovery on the back of recovering alcohol sales.
Maintain BUY with a higher SOTP target price of S$1.11.

THBEV’s headline FY17 net profit increased 38.3% yoy on the back of recognition of F&N’s fair value gains on financial assets (Bt8,498m). FY17 adjusted earnings of Bt26,184m (+4.6% yoy) was below our and consensus expectations, representing 92-95% of FY17 forecasts.
Downside surprise came from the flat FY17 revenue growth (-0.02% yoy), as we expected a much stronger 4QFY17 recovery in alcohol sales on the back of agent stockpiling ahead of excise tax in September.

Considering the year-long of mourning period impact, the FY17 results are decent, helped by 4QFY17 earnings growth of 11.3% yoy. The group declared a final dividend of Bt0.47/share, which brings its full-year dividend payment to Bt0.67/share (compared to FY16’s Bt0.60/share).

FY17 revenue was flat at Bt190.0m (-0.02% yoy), due to a decrease in sales of beer (-4.7% yoy), nonalcoholic beverages (NAB) (-0.9% yoy) but supported by an increase in spirits (+2.6%yoy) and food business (+1.5% yoy) sales.

After the mourning period ended in Oct 17, alcohol sales volume is poised for a strong yoy recovery in FY18 as alcohol consumption resumes. However, given the stockpiling by agents prior to the excise tax hike in September, 1QFY18 may be impacted by potential destocking to normalised levels. This is not a big concern, given the high seasonality of 1QFY18 on the Christmas and New Year festivities, which should mitigate the impact.

Spirits recorded a strong net profit growth of 41% yoy in 4QFY17 on the back of strong spirit sales (+34% yoy) as agents were alerted by an increase in excise tax, resulting in higher purchase orders.

FY17 beer net profit declined 4.1% yoy on the back of an overall decline in beer sales (-4.7% yoy) as well as increase in advertising and promotion expenses. Agent stockpiling ahead of the excise tax was not sufficient to offset the effects of mourning period, competitive pressure and economic situation.
Beer consumption is typically more volatile to the economy or events as it has a higher proportion of on-trade sales compared to spirits. Nevertheless, THBEV has managed to maintain its 40% market share in the past year.

FY17 net loss of the NAB segment stood at 855 Btm, a 45.5% yoy improvement. (FY16 net loss: 1,570 Btm). This was largely driven by cost efficiency in terms of lower packaging costs and A&P expenses.
Commendably, NAB reached EBITDA breakeven in FY17, which was better than management’s expectation. NAB is expected to breakeven within the timeframe under THBEV’s Vision 2020 roadmap.

Introduce FY20 earnings forecast; adjust FY18 net profit forecast down slightly by 2.3% as we refine our cost assumptions and take into account potential destocking in 1Q18.

Maintain BUY with a higher SOTP target price of S$1.11 (previously S$1.09). The higher valuation is due to higher market values of associates, higher PE multiple for spirits at 18x (16x previously), offset by the slight downward adjustment to our FY18 earnings forecast.
We value:
1. the spirits business at 18x EV/EBITDA, in line with global peers’;
2. the beer business at 13x EV/EBITDA, a premium to the global peers’ average of 12.x as THBEV’s beer business is on an uptrend;
3. the NAB business at 2x EV/sales, a discount to peers’ as THBEV’s NAB business is still loss-making; and
4. the food business at 15x EV/EBITDA, in line with local peers’.
FCL and FNN, in which THBEV owns 28% each, are valued based on their latest market values.
THBEV’s current PE at 20.5x is still lower than that of global spirits peers’ average of 30.6x 2018F PE, 22.0x for beer companies and 27x for NAB companies.

Thai Wei Ying UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-11-27

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.11 Up 1.090