Thai Beverage - OCBC Investment 2019-11-25: Recovery In Domestic Consumption


Thai Beverage - Recovery In Domestic Consumption

  • Stronger domestic demand.
  • Beer and food business performance deteriorated.
  • Valuations not particularly compelling.

FY19 PATMI rose 13.8% y-o-y

  • THAI BEVERAGE (SGX:Y92)’s results were below ours and the street’s expectations due to higher expenses. FY19 revenue increased by 16.4% y-o-y to THB 267.4b, driven by better spirit business (+8.6% y-o-y), and beer business (+26.6% y-o-y) on the back of improved domestic demand while gross profit improved 15.9% y-o-y to THB 77.4b. See Thai Beverage Announcements.
  • Net operating profit rose 16% y-o-y to THB 26.5b. Stripping off the non-recurring expenses in FY18, PATMI grew 13.8% y-o-y to THB 23.3b in FY19, which translates to 96.6%/ 93.6% our and the street’s initial full-year forecast.
  • A full-year dividend of 0.48 Baht per share was declared compared to 0.39 Baht in FY18.

Spirits was the key driver; NAB remained a loss

  • Thai Beverage’s domestic beverage business saw some improvement in 4Q, helped by the government’s stimulus measures which increased consumer purchasing power.
  • On a segment basis, spirits showed a 8.6% y-o-y increase in revenue to THB 115.0b on the back of improved domestic demand while PATMI grew 12.9% y-o-y to THB19.2b in FY19. Total sales volume of spirits including Grand Royal Group’s sales was up 8.9% y-o-y to 666.5m litres. Excluding Grand Royal Group, spirits sales volumes increased by 7.9% y-o-y to 577.9m litres.
  • For the beer segment, despite the strong 26.6% y-o-y growth in sales revenue, FY19 PATMI dropped 36.0% y-o-y, largely due to higher finance costs after ThaiBev refinanced its bridging loans.
  • Meanwhile, the non-alcoholic beverage business recorded a 7.5% increase in sales revenue while PATMI remained at a loss of THB 1.0b but narrowed 20.8% due to increase in gross profit and a decrease in advertising and promotion expenses.
  • Separately, the food business posted a 17.3% y-o-y increase in revenue to THB 15.6b while PATMI dropped 19.5% y-o-y due to higher finance costs.

Expecting higher costs in FY20

  • Management remains positive on Thailand’s domestic market given government’s stimulus package and sees any additional stimulus policies as positive to ThaiBev’s beer and spirits business. However, Thailand’s soft economic growth outlook, as well as higher costs from Thai Beverage’s packaging and a potential increase in raw material costs in FY20 would be drag.
  • Valuations look reasonable but are not particularly compelling as at 22 Nov’s close.
  • ThaiBev is trading at a blended forward P/E of 18.3x, at its 5-year average mean. After adjustments, our fair value estimate from S$0.86 to S$0.91. See Thai Beverage Share Price; Thai Beverage Target Price.

Chu Peng OCBC Investment Research | 2019-11-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.91 UP 0.860