Thai Beverage - OCBC Investment 2018-08-16: Patience Is A Virtue

Thai Beverage - OCBC Investment Research 2018-08-16: Patience Is A Virtue THAI BEVERAGE PUBLIC CO LTD SGX:Y92

Thai Beverage - Patience Is A Virtue

  • Soft domestic beer market…
  • But looking forward to Sabeco synergies.
  • Change in covering analyst.

Core 3QFY18 PATMI met 24% of FY18 estimate

  • Thai Beverage PLC’s (ThaiBev) core 3Q18 results were within expectations, albeit on the lower end. Revenue increased 34.1% y-o-y to THB 60.7b, boosted by the consolidation of results from Sabeco.
  • Group-wide gross profit and operating profit margin softened by 3.6 ppt to 27.5% and by 2.9ppt to 10.9% respectively. Core EBITDA was up 16.7% y-o-y to THB 10.8b. As a result, core PATMI dropped 10.3% y-o-y to THB 6.0b or 24% of our estimate. 9M18 core PATMI came up to 70% of our initial full-year forecast.
  • Management noted that the overall domestic alcohol beverage market remained soft during the quarter, due to a slower than expected recovery in the Thai economy.

Domestic spirits and beer volume down 11% and 9% y-o-y

  • ThaiBev’s Spirits business continues to contribute the bulk of the group’s PATMI. For the quarter, Spirits’ revenue dropped 3.3% y-o-y to THB 25.5b. Excluding Grand Royal Group, sales volumes fell 11.2% y-o-y on the back of challenging economic conditions and cautious discretionary spending. Segment EBITDA margins were down at 22.3%, vs. 25.1% in 3Q17. Meanwhile, the beer business posted a 105.2% y-o-y higher revenue, on the back of consolidating Sabeco’s results.
  • Excluding Sabeco, the company’s beer business recorded a 8.9% drop in revenue. Sabeco contributed positive net profit to the beer business, with acquisition-related finance costs lower than their profit. Beer EBITDA margins were 3.8 ppt stronger y-o-y at 10.6% in 3Q18.

~ ~ Where SG investors share

But a brighter future awaits…

  • With a change in covering analyst, our fair value dips from S$0.95 to S$0.89. We remain wary on domestic economic weakness amongst middle- and low-income consumer groups, and lower our growth expectations for FY19. Nonetheless, we find valuations attractive with Thai Beverage trading at a FY19F P/E of ~15.0x as at 15 Aug’s close, or 1.4 standard deviations below its 5-year mean for forward P/E.
  • For FY19, we look forward to ThaiBev’s recent gain in management control of Sabeco and expect the management to start implement efficiency improvements in the next six to twelve months, especially with regards to procurement of raw materials. For the domestic business, should the Thai elections be held in Feb 2019, we believe this would have a significant stimulating effect on beer consumption. However, the possibility of an election delay remains.
  • Over the longer term, we believe ThaiBev’s recent expansions beyond its domestic market will continue to help drive growth. In particular, we see the Sabeco acquisition as a strategic entry to a growing market that will bear fruits in time. Maintain BUY.

Deborah Ong OCBC Investment Research | 2018-08-16
SGX Stock Analyst Report BUY Maintain BUY 0.89 Down 0.950