Thai Beverage - UOB Kay Hian 2019-05-13: 2QFY19 Drinking At A Slower Pace

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THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - 2QFY19 Drinking At A Slower Pace

• Thai Beverage's 2QFY19 net profit dropped 12% y-o-y with profit from the spirits segment declining 15% y-o-y on a high base due to higher stocking from agents in 2QFY18. After the high in 1QFY19, sales volume recovery looks to be progressing at a slower pace.
• The expansion plans for the food segment are a drag while non-alcoholic beverage provided a rare bright spark.
• Maintain HOLD with SOTP-based target price of S$0.85. Entry price: S$0.76.

THAIBEV 2QFY19 RESULTS

2QFY19 net profit dropped, in line with expectations.

• THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) reported 2QFY19 net profit of Bt5,790m, down 12.2% y-o-y. This represents 49.5% of our full-year forecast, in line with expectations. An interim dividend of 15 S cents was declared, unchanged y-o-y.

Sprits: Affected by high base.

• Net profit for the segment dropped 14.8% y-o-y to Bt5,151m due to weaker sales volume as well as higher advertising and promotions expenses. Revenue dropped 5.8% y-o-y as agents and retailers increased purchase orders in Mar 18 ahead of price increases in Apr 18, following Thailand’s implementation of an Elderly Fund Tax.

Flat top-line, net margin weakened.

• Turnover increased 3.6% y-o-y to Bt69,992m while core net margin dipped to 9.0% (2QFY18: 9.7%). While the general elections has helped, weaker farm income may have hampered demand.

STOCK IMPACT

Spirits.

• The domestic spirits sales volume fell to 151.5m litres (-5.3% y-o-y) while Myanmar spirits sales continued to grow strongly. Thai Beverage’s domestic market share was stable but with weaker brown spirits consumption.
• Overall, the segment’s SG&A expenses have risen q-o-q, with SG&A-to-turnover ratio at 12.1% (1QFY18: 10.9%), largely from an increase in promotions expenses due in part to the general elections. Domestic sales volume for 1HFY19 was only marginally better (+4.4%) than the high of 1HFY17, and a slower pace of consumption may be expected for 2HFY19.

Beer.

• Sales volume excluding Sabeco beer was 213m litres, up 3.6% y-o-y, and including Sabeco beer was 663m litres (+10.6% y-o-y). Overall, beer sales grew 13.3% y-o-y, substantially contributed by Sabeco.
• Net profit contribution from the segment dipped 2.2% y-o-y for 1HFY19 due to an increase in finance costs.

Sabeco: Solid growth but still watch out for more expenses.

• Sabeco saw solid top-line growth of VND9.3b in the quarter (+19% y-o-y) although gross margin continued to dip on higher malt costs. Gross margin came in at 23.5% (1QFY18: 24.8%) although management highlighted price hikes for beer in recent months.
• Sabeco’s management is targeting 7% y-o-y growth in net profit for 2019, with results from the quarter currently putting it on track. However, we are still weary of higher promotions and selling expenses which were up in the quarter (+16% y-o-y) as well as costs incurred from a ramp-up in capacity.

Food & NAB.

• Food revenue increased to Bt3,780m (+10.5% y-o-y) as the group continued to expand its KFC stores. However, the new stores have impacted profits (-38.6% y-o-y) while the non-alcoholic beverage (NAB) segment was a rare bright spark as net loss narrowed to Bt366m (+35.4% y-o-y) with a drop in promotions expense.
• Total sales volume was up marginally to 432.2m litres (+3.1% y-o-y).

EARNINGS REVISION/RISK

• We reduce FY19-21 net profit estimates by up to 2% on slower growth in domestic alcohol consumption.

VALUATION/RECOMMENDATION

Maintain HOLD with revised sum-of-the-parts target price of S$0.85.

• 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 AND NEAVE (F&N, SGX:F99), which Thai Beverage owns 28% each, are valued based on market value. Entry price is S$0.76.
• Awaiting better contribution from beer segment.
• Sabeco longer-term prospects remain positive but will likely take a while for contribution to improve.

SHARE PRICE CATALYST

• Successful execution of organisational restructuring.
• Gaining market share in the beer segment.
• M&A.

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-05-13

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.850 DOWN 0.860