Thai Beverage - OCBC Investment 2018-03-05: Seems Like High Gearing Will Stay For A While

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THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - Seems Like High Gearing Will Stay For A While

• Core 1QFY8 below expectations.
• Yet to see rebound in consumption.
• High gearing due to Sabeco acquisition.

Consumption remained slow post-mourning period 

• Thai Beverage PLC’s (ThaiBev) recent 1QFY18 results came in below our expectations reflecting the slow resumption of domestic alcohol consumption post-mourning period, and it was also affected by destocking of sales agents’ inventory. 
• Coupled with higher advertising and promotion expenses and lower sales volume, net profits from beer and spirits segments plunged 21% and 30%, respectively. Consequently, excluding Sabeco expenses and non-recurring expenses of THB2.5b, ThaiBev’s 1QFY18 core PATMI fell 30.4% y-o-y to THB5.4b, forming 20% of our FY18 estimate. 
• While demand for spirits and beer were soft in 1QFY18, we expect recovery in consumption for the rest of FY18, supported by:
  1. Songkran (Thai New Year’s festival) with holiday recently extended from three to five days (12 Apr – 16 Apr), as well as, 
  2. World Cup in Jun 18 to lift alcohol consumption with compatible match timings for the viewers in Asia.

Converting bridging shareholder loan into a long-term loan 

• Recall that ThaiBev recently, through Vietnam Beverage (VB), a wholly-owned subsidiary of Vietnam F&B, which in turn is ThaiBev’s indirect 49%-owned associate, acquired 343.6m shares (or 53.6% equity stake) in Sabeco, at VND320,000/share, translating to an aggregate cost of THB156b (~US$4.8b). 
• While ThaiBev’s exposure to this acquisition is only 49% through its stake in VB, ThaiBev is bearing 100% of the acquisition funding need through a shareholder loan to VB. Hence, we expect gearing to remain high for a while, as we understand that the short-term shareholder loan is in the process of being converted into a long-term shareholder loan. 
• Taking into account the KFC acquisition in Thailand and Grand Royal acquisition in Myanmar, we estimate net gearing as at end-FY18 to spike up to ~1.4x from ~0.2x as at end-FY17.

Long-term growth strategy intact 

• Over the longer-term, we deem ThaiBev’s acquisition of the largest beer player in fast growing Vietnam market to be positive and important, as part of its plans under its Vision 2020 to diversify away from business concentration in Thailand. 
• All considered and on above-mentioned reasons, we adjust our estimates and decrease our Fair Value from S$1.07 to S$0.95.

Eugene Chua OCBC Investment | http://www.iocbc.com/ 2018-03-05

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.95 Down 1.070