Thai Beverage - UOB Kay Hian 2020-01-28: Curbing Vietnam’s Enthusiasm

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) | SGinvestors.io THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - Curbing Vietnam’s Enthusiasm

  • A new drink-driving law in Vietnam has dampened expectations in the high-growth market for Thai Beverage (SGX:Y92), with local reports of beer sales being heavily affected since the new regulation was enacted on 1 Jan 20. We see more severe effects for Sabeco if Vietnam’s regulatory rules encompass wider public restrictions.
  • Maintain HOLD. See Thai Beverage Target Price.
  • Entry price: S$0.75.


WHAT’S NEW


Vietnam woes ahead?

  • Recent reports surfaced of beer sales in Vietnam being affected by a new drink-driving law enacted on 1 Jan 20. Under the new law, motorbike drivers who have been drinking will be fined up to US$345, while car drivers under the influence could face a penalty of up to US$1,800. Such drivers face a two-year licence suspension and stiffer penalties.
  • Around 6,300 drivers across the country have been fined in the two weeks since the law was introduced.

A spanner in the works of festivity.

  • According to local media reports, beer sales have dropped at least 25% since the introduction of the new law. This leads up to the festive Lunar New Year period which is seasonally stronger for beer sales. Vietnam contributes about 24% of Thai Beverage’s group revenue in FY19.

Barring new regulation, still some weakness in Sabeco.

  • Not accounting for the new regulation, Sabeco reported a weaker quarter, with a decline in net sales (-7% y-o-y) in 4Q19, in line with lower sales volume and a result of higher tax from changing one of its breweries from an associate to subsidiary. Sabeco is Thai Beverage’s beer business entity in Vietnam, and holds about 40% of the market in the country.

But demographics and middle-income growth still in favour in the longer term.

  • Vietnam’s growing middle class and youthful population has helped drive expectations for the beer industry, with a 284% surge in beer consumption between 2004 and 2018, according to Euromonitor. Approximately 60% of the population is under the age of 40.


STOCK IMPACT


Spectrum of regulatory rules to curb consumption effectively…

  • The stricter regulations in Vietnam appear to be initially centered on the hazards of drink driving rather than a general clampdown on alcohol usage. We note a wider range of measures in countries such as Russia which has led to a more substantial consumption decline, such as restriction on public consumption and sales.
  • According to the World Health Organisation, the implementation of alcohol control measures has reduced total alcohol consumption in Russia by 43% from a peak in 2003 to 2016.

…although downside risk is likely to remain.

  • However, we opine that regulatory risk will likely remain if stricter alcohol policies are enacted. Beer companies may also face higher competition as prices are lowered to garner consumers’ support.


EARNINGS REVISION/RISK

  • None.


VALUATION/RECOMMENDATION


Maintain HOLD. See Thai Beverage Target Price.

  • We value:
    1. the spirits business at 17x EV/EBITDA, in line with global peers’;
    2. the beer business at 15x EV/EBITDA, in line with peers’ average;
    3. the non-alcoholic beer (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 14x EV/EBITDA, in line with local peers’.
  • Frasers Property (SGX:TQ5) and F&N (SGX:F99), in which Thai Beverage owns 28% each, are valued based on market value.
  • Entry price is S$0.75.


SHARE PRICE CATALYST

  • Consumption growth from Thai government stimulus.
  • Gaining market share in the beer segment.
  • M&As.





Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-01-28
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.900 SAME 0.900



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