Thai Beverage - RHB Invest 2018-05-17: Improving Q-o-q

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THAI BEVERAGE PUBLIC CO LTD SGX: Y92

Thai Beverage - Improving Qoq

• Maintain BUY with an unchanged Target Price of SGD1.06, 33% upside.
• Thai Beverage's 2QFY18 PATMI of THB6.3bn improved 18% q-o-q and was in line with our expectation. Excluding one-off acquisition and finance costs incurred in 1QFY18, 1HFY18 core PATMI met 42% of our full-year estimate.
• While spirits volumes have recovered q-o-q, we note that beer volumes continue to be soft. Nonetheless, we expect World Cup to stimulate on-trade consumption in this quarter.

Optimistic on sequential improvement.

• Thai Beverage’s 2QFY18 results have improved sequentially, as a recovery in Thailand spirit volumes, and acquisitions in the spirits and food segments held earnings up. However, we understand that on-trade consumption remains weak, especially in the upcountry area. As such, beer volumes were negatively impacted.
• Earnings contributions from the acquisition of Saigon Beer Alcohol Beverage Corp (Sabeco) were eroded by acquisition and finance costs.

Spirits segment continues to be resilient.

• Spirits segment continues to be resilient due to higher proportion of off-trade demand. Contrary to our expectation, the proportion of brown spirit sales has increased relative to white spirits. However, we note from the CEO of the spirit product group, Mr Prapakon Thongtheppairot, that this was mainly driven by the brand Hong Thong, which is more frequently consumed in the household.
• We are optimistic on this trend, since brown spirits have a higher price point per bottle and could drive revenue growth faster than white spirits.

World Cup to boost on-trade consumption.

• We expect the World Cup event happening in June and July to stimulate on-trade consumption. 
• Given that the CEO of the beer product group, Mr Edmond Neo, guided for advertising & promotions (A&P) ratio to stay at similar levels, we believe the improvement in on-trade demand led by World Cup could bring q-o-q enhancements in absolute profit levels.

Maintain BUY with unchanged Target Price of SGD1.06, 33% upside.

• This is based on SOP valuation.
• We expect further earnings improvements over the next two quarters, as the World Cup boosts demand and GDP growth trickles down to consumers. 
• Improvements in alcohol consumption in Thailand could be a key catalyst to the stock.

Juliana Cai CFA RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-17

SGX Stock Analyst Report BUY Maintain BUY 1.060 Same 1.060