Thai Beverage Public Company - DBS Research 2018-05-16: Within Expectations, Sequential Improvement

THAI BEVERAGE PUBLIC CO LTD SGX: Y92

Thai Beverage Public Company - Within Expectations, Sequential Improvement

Thai Beverage's 2Q18 a mixed bag but within expectations with sequential improvement from dismal 1Q18; interim DPS of THB0.15.
Domestic recovery still seems patchy – Spirits volume registered growth but Beer volumes still weak.
Recent acquisitions contributing positively.
Maintain BUY (target price S$1.02) for long term potential.

While ThaiBev’s 2Q18 results was a mixed bag, it was largely within expectations.
Net profit attributable to shareholders dipped marginally by 3% y-o-y to THB6.3bn on the back of 34% increase in topline to THB67.6bn.
2Q18 performance was a sequential improvement from the dismal performance seen a quarter earlier in 1Q18 where core profits (without one-off transaction costs) slumped by c.30% due to destocking and higher selling expenses.

Given its gearing post the acquisition of Saigon Beer Alcohol Joint Stock Corporation Ltd (Sabeco) in Dec, the Group declared a lower interim DPS of THB0.15, compared to 1H17’s THB0.20. This is within our expectations. That said, we believe this also signals management’s confidence in the overall sustainability in the cashflow of the Group despite its gearing.
Our key takeaway from this set of results is that domestic performance is a mixed bag with sequential q-o-q improvement in Spirit sales volume, while Beer sales remained lackluster. On the positive side, its recent acquisitions appear to be contributing to net profit, despite the seemingly high valuations.

Overall, Spirits registered a 14.3% y-o-y increase in revenue to THB33bn, arising from increase in sales volume (+17.7% y-o-y to 186.9m litres). This was helped by the consolidation of its Grand Royal acquisition, which contributed 27m litres or THB2.76bn revenue.
Excluding Grand Royal, we estimate ThaiBev’s existing Spirits business still registered 5% and 3.6% y-o-y increase in revenue and sales volume, respectively. This was an improvement from 1Q18 where Spirits revenue (ex-Grand Royal) dipped by an estimated 6%.

Beer revenue surged by 74.4% y-o-y to THB27.1bn, which was due to the consolidation of Sabeco’s financials. Total sales volume was 579.6m litres, an increase of over 1.5x. However, excluding Sabeco’s sales volume, beer volumes dipped by 10.3% y-o-y to 205.2m litres.
On the back of this, we estimate Beer revenue (ex- Sabeco) dropped by c.10.9% y-o-y to THB13.8bn. This seems to largely track the overall direction of the Thai beer market based on Bank of Thailand statistics, which showed a c.7% contraction in the quarter ending March 2018.

While the overall beer segment’s net profit slumped two-thirds to THB307m due to its weak existing beer business, we note that Sabeco contributed positively to the bottomline. This provides us with some early signals and comfort that this acquisition has the potential to contribute further to the Group aided by extraction of synergies and/or operating efficiencies.
Non-Alcoholic Beverages revenue declined by 4.8%, due mainly to a product mix mitigated partially through an increase in sales volume. As a result of higher advertising and promotional expenses along with a lower revenue, net loss for the segment widened to THB340m, from THB272m a year ago.

Revenue for Food segment more than doubled (+108% y-o-y) to THB3.4bn, largely arising from an increase in restaurants along with the recent acquisitions. Net margin jumped to 6.3%, from 2.1%, which helped in the surge in profit to THB209m (+646% y-o-y).

We continue to like the long-term potential of ThaiBev evolving into a regional beverage player on the back of its recent acquisitions (Grand Royal and Sabeco) as a springboard.
That said, we are also cognisant of the market’s skepticism of a recovery in the Thailand consumer market and also require more clarity on potential synergies and deleveraging plans.
In the meantime, we believe Thai Beverage's share price performance would remain choppy, though we advocate accumulating on weakness.
Potential catalysts for the counter may arise from
1. assurance and plans to hedge against interest rate hikes, and or deleveraging, such as via the monetisation of Frasers Property Limited;
2. stronger signs of Thailand domestic recovery, leading to stronger sales; and
3. plans to share potential synergies arising from recent acquisitions to drive EPS growth.

Andy SIM CFA DBS Vickers | Alfie YEO DBS Vickers | https://www.dbsvickers.com/ 2018-05-16

SGX Stock Analyst Report BUY Maintain BUY 1.020 Same 1.020