Thai Beverage - UOB Kay Hian 2019-03-14: Tapping On Brand Value

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THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - Tapping On Brand Value

• Thai Beverage revealed its business developments in areas such as spirits portfolio management. The group intends to build its brand leadership and distribution reach in 2019.
• Maintain HOLD with an unchanged SOTP-based target price of S$0.86. Entry price: S$0.78.

WHAT’S NEW

Refining spirits to enhance market segments outreach.

• Thai Beverage (SGX:Y92) has introduced the InverHouse whisky portfolio through its channel of luxury hotels and restaurants, extending its reach into the premium segment. Premiumisation remains the name of the game as the group looks to capitalise on its strong brand recognition by improving on packaging designs and expanding into smaller volume offerings for brands such as Ruang Khao Silver.
• The introduction of the Ready To Drink (RTD) category of spirits such as the Kulov Max 7 vodka and wine cooler also caters to the growing niche market segments which have a preference for convenience.

Challenges for domestic beer.

• The beer market in Thailand remains a competitive environment with Thai Beverage continuing to put in effort to gain brand recognition and market share through experiential platforms of event marketing.
• In a recent briefing, management remained positive on its marketing efforts and has cited gains in the recent quarter, with its domestic volume growth (8% y-o-y) outpacing industry growth (approximately 4% y-o-y). It looks to build up the next generation of direct sales agents from the current 1,100 sales team.
• Overall, Thai Beverage faced cost pressures in 2H18, with the beer segment affected by high raw material costs from elevated malt prices.

Sabeco in a transitional phase; the hidden dragon.

• Sabeco’s management is confident of the executional improvements that the company has made since taking over, transforming the brand through revamped marketing activities and integration with employees. Sabeco can be expected to develop further enhancements in the longer term, such as the optimisation of production facilities and synergistic benefits of procurement with Chang Beer.

Food segment growth from store expansion.

• The food segment is expected to continue the momentum of store expansion growth. Thai Beverage has added 15 stores in 1QFY19 will look to add more stores in the coming year, including the recently acquired KFC franchise.

STOCK IMPACT

Awaiting progress in beer segment.

• While we note that malt prices have dropped since the start of the year, Thai Beverage continues to ramp up its marketing efforts in the beer segment in a competitive environment, which will affect the rate of margin improvement.
• Looking ahead to 2QFY19, the industry beer volume in Thailand for Jan 19 came in at 178m litres (+0.6% y-o-y), increasing only marginally following a robust growth in 1QFY19.

EARNINGS REVISION/RISK

• No change to our earnings forecasts.

VALUATION/RECOMMENDATION

Maintain HOLD with an unchanged SOTP-based target price of S$0.86.

• We value:
  1. the spirits business at 16x EV/EBITDA, in line with global peers,
  2. the beer business at 15x EV/EBITDA, in line with ASEAN peers’ average of 15.4x,
  3. the NAB business at 2x EV/sales, a discount to peers’ 3.0x as Thai Beverage’s NAB business is still loss-making; and
  4. the food business at 15x EV/EBITDA, in line with local peers.
• Frasers Property Limited (SGX:TQ5) and Fraser & Neave (SGX:F99), in which Thai Beverage owns 28% each, are valued based on market value.

SHARE PRICE CATALYST

• Successful execution of organisational restructuring.
• Improved margins in the beer segment.
• M&A.

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-03-14

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.860 SAME 0.860