Thai Beverage - DBS Research 2018-08-15: Weak 3Q18 As Expected

Thai Beverage - DBS Group Research 2018-08-15: Weak 3q18 As Expected THAI BEVERAGE PUBLIC CO LTD SGX:Y92

Thai Beverage - Weak 3Q18 As Expected

  • ThaiBev’s 3Q18 results weak as expected.
  • Domestic recovery elusive though we remain hopeful of sequential recovery on signs on farm income uptick.
  • Spirits volume declined while Beer was not as weak as expected.
  • ThaiBev’s share price could remain volatile; BUY for long-term potential.

What’s New

3Q18 weak as expected.

  • ThaiBev’s 3Q18 results was weak as expected. Headline net profit registered a drop of 61% y- o-y largely due to the absence of fair value gains recognised by its associate (F&N, SGX:F99) on an investment in Vinamilk. This amounted to THB8.5bn. Excluding that, core net profit would have declined by 11% y-o-y to THB6bn, largely due to weaker than expected performance from its Spirits business.
  • Group revenue was THB60.7bn, an increase of 34.1% y-o-y, on the back of increased contribution in beer (+105.2% y-o-y) due to acquisition and consolidation of Saigon Beer (Sabeco), food business (+109.7%) but offset partially by decline in its Spirits revenue (-3.3%) and Non-Alcoholic Beverages (-2.7%).

~ ~ Where SG investors share

Domestic consumption still weak.

  • The overall domestic consumption for ThaiBev still looks weak, though we remain hopeful for things to gradually turn around on the back of improving agricultural prices and farm income.

Spirits revenue decline a surprise.

  • In a change of fortune from 2Q18, Spirits registered a surprising drop of 2.4% y-o- y, contributed by an 11.2% decline in sales volume in Thailand. Including contribution from Grand Royal (12.8m litres), total Spirits’ sales volume registered an increase of 1.3% y-o-y. The decline in Spirits’ sales volume in Thailand in 3Q18 could be partially due to some stocking up in 2Q18 prior to the implementation of Elderly fund (additional 2% excise).
  • Coupled with an increase in SG&A expenses, Spirits’ EBIT margins fell by 3.3ppts y-o-y to 20%. As a result, net profit from Spirits dropped by 15.6% y-o-y to THB4.02bn in 3Q18.

Beer volume decline not as large as expected.

  • Revenue for Beer segment continued to be held up by the consolidation of Sabeco’s financials, leading to a surge in revenue to THB28.3bn (+105.2% y-o-y). Excluding Sabeco, beer sales volume declined by 8.9% y-o-y. This was relatively smaller than anticipated comparing against data released by the Bank of Thailand showing 20-25% y-o-y drop in beer production in the months of April and May. We believe this could suggest stronger volumes in June on the back of World Cup events.
  • Non-Alcoholic Beverages’ revenue declined by 2.7%, due to decline in sales volume, offset partially by higher sales of drinking water and carbonated soft drinks. Net loss for the segment widened by 33% y-o-y to THB286m.

Food segment revenue jumped on acquisitions.

  • Continuing the trend from 2Q18, revenue for Food segment jumped to THB3.6bn (+110% y-o-y), largely from increase in restaurants along with the recent acquisitions. That said, net profit contribution remained relatively small at THB32m.

Our Views

Maintain BUY, Target Price: S$0.94.

  • We retain our longer term view of the potential of the group as it evolves into a regional beverage player. However, we believe ThaiBev’s share price could remain volatile given the weak domestic consumption.
  • Though we believe the recent uptick in farm income could lead to sequential recovery, we are cognizant of the market’s skepticism and await firmer confirmation from tangible results.
  • Potential catalysts for the counter could arise from
    1. assurance and plans to hedge against interest-rate hikes, and or deleveraging, such as via the monetisation of Frasers Property Limited (SGX:TQ5);
    2. strong signs of consumption recovery in Thailand, leading to stronger sales; and
    3. plans to extract potential synergies arising from recent acquisitions, which would help towards EPS growth.

Andy SIM CFA DBS Group Research | Alfie YEO DBS Research | 2018-08-15
SGX Stock Analyst Report BUY Maintain BUY 0.940 Same 0.940