THAI BEVERAGE PUBLIC CO LTD
Y92.SI
Thai Beverage - Still Gestating SABECO Purchase; 1Q18 Remains Soft
- Thai Beverage's 1QFY9/18 core net profit of THB5.3bn was below expectations at 18.8%/18.3% of our/consensus FY18F estimates due to higher-than-expected selling expenses.
- Spirit and beer volumes were still soft as the Thai economy had not really shaken off the effects of the mourning period.
- Management guided that it would incorporate SABECO's financials from 2QFY9/18 onwards; but the effective economic stake is still undergoing auditor evaluations.
- We were surprised that the loan repayment from Vietnam Beverage for the SABECO acquisition may spill beyond the guided 12-month repayment period.
- Maintain HOLD with a lower target price. The company will hold its Annual Information Meeting for Shareholders (AIM) on 21 Feb 2018.
Thb Higher-than-expected selling expenses in 1QFY18
- While we had expected a softer 1QFY9/18 on the back of de-stocking exercises by sales agents (4QFY9/17 volumes and revenues were higher due to sales agents stocking ahead of the excise tax implementation in Sep CY17); core net profit of THB5.3bn was slightly below expectations due to higher-than-expected selling expenses of THB4.9bn (vs. our forecast of THB4.6bn/quarter).
- Core net profit excludes one-off SABECO costs amounting to THB2.4bn.
Alcohol volumes could remain slow in 2QFY9/18
- 1QFY9/18 spirit and beer volumes of 352m litres were down 8% q-o-q from 383m litres in 4QFY9/17 due to the above-mentioned de-stocking exercises; but were also 3.6% lower y-o-y (1QFY9/17: 365m litres), largely due to beer volumes falling 5.9% due to sluggish demand post the mourning period.
- Management guides that demand for spirits and beer is still soft, which suggests that volume growth could be flat in 2QFY9/18.
Still gestating SABECO purchase; impact fully seen from 2QFY9/18
- ThaiBev guided that SABECO’s profitability and cashflow will only be incorporated from 2QFY9/18 onwards as the deal was completed close to the end of Dec 17. This is despite assets and liabilities already being included in its balance sheet.
- We understand that SABECO’s earnings are likely to be consolidated; however the effective economic stake is still being evaluated by its auditors. We previously assumed that ThaiBev has an effective 26.3% stake in SABECO.
Repayment of Vietnam Beverage’s loans could spill beyond CY18
- ThaiBev guided that the repayment of loans extended to Vietnam Beverage could match the two-year bridging loan it had obtained to fund the SABECO deal. This is a surprise to us given that it previously guided that such loans would be repayable within 12 months.
- To recap, ThaiBev is bearing 100% of the deal’s acquisition costs of THB156bn; despite having an estimated 26.3%-stake in SABECO. This elevates ThaiBev’s balance sheet risk, keeping net gearing levels above 1x in FY18-20F (vs. 0.2-0.3x historically).
Maintain HOLD with a lower Target Price of S$0.98
- We cut FY18-20F EPS by 0.6-1.7% as we factor in higher selling expenses. Uncertainties relating to the SABECO acquisition and elevated balance sheet risks could continue to cap investor sentiment on the stock.
- We maintain our HOLD call, with a lower SOP-based Target Price of S$0.98 (from S$1.00) as we revalue ThaiBev’s stake in SABECO post the latter’s share price decline of c.37% to VND234k/share currently (vs. ThaiBev’s acquisition price of VND320k/share).
- Upside risks are higher profits and lower net gearing.
- Downside risks are deterioration in earnings.
Cezzane SEE
CIMB Research
|
LIM Siew Khee
CIMB Research
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http://research.itradecimb.com/
2018-02-15
CIMB Research
SGX Stock
Analyst Report
0.98
Down
1.000
