Thai Beverage - OCBC Investment 2019-05-13: Take A Breather

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THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - Take A Breather

• Total returns of 37.2% YTD.
• Tempering our optimism on domestic consumption.
• Fair value drops 4% to S$0.88.

Thai Beverage's 2Q19 core PATMI down 12% y-o-y

• THAI BEVERAGE (SGX:Y92)’s results were within expectations. 2Q19 revenue increased 4% y-o-y to THB 70.0b while gross profit improved 2% y-o-y to THB 20.4b.
• Net operating profit dropped 9% y-o-y to THB 6.8b. 2Q19 core PATMI showed a 12% y-o-y decline to THB 5.8b, which translates to 24% of our initial full-year forecast.
• On a 1H19 basis, Thai Beverage's PATMI improved 11% y-o-y to THB 13.2b or 55% of our initial full-year forecast.

Spirits volumes down 3% y-o-y on domestic consumption softness

• The decline in PATMI was mainly driven by poorer results from the Spirits segment, which continues to contribute the bulk of the bottom-line. Spirits showed a 5.8% y-o-y decrease in revenue and posted a 12.2% y-o-y decline in PATMI to THB 5.7b. Total sales volume of spirits including Grand Royal Group’s sales was down 2.9% to 181.3m litres. Excluding Grand Royal Group, spirits sales volumes dropped 5.3% y-o-y to 151.5m litres.
• Meanwhile, the beer segment recorded a 13.3% increase in sales revenue, and a 60.4% increase in PATMI to THB 217m. Beer volumes increased 10.6% y-o-y to 663 m litres, on the back of a better domestic market and higher contributions from Sabeco. Excluding Sabeco’s sales, the company’s beer sales volume increased 3.6% y-o-y.

Look forward to Sabeco cost savings

• We note that several cost saving/efficiency initiatives at Sabeco are underway – these include office rationalization, lightweighting carton boxes, and negotiating better bulk purchasing rates for raw materials. While these positive synergies from the Sabeco acquisition will flow through to its bottom line, we note that this will require time to bear fruit.
• Looking ahead, aside from the coronation-related celebrations in May, we expect more muted performance from the domestic spirits segment. After adjustments, our fair value drops 4% from S$0.91 to S$0.88.
• Thai Beverage has posted total returns of 37.2% YTD, vs. the Strait Times Index’s 8.6%, as at 10 May’s close. (See: Share Price Performance - Straits Times Index STI Constituents) Given the strong rally and the adjustments to our fair value, we downgrade Thai Beverage from Buy to HOLD.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2019-05-13

SGX Stock Analyst Report HOLD DOWNGRADE BUY 0.88 DOWN 0.910