Thai Beverage - CGS-CIMB Research 2020-02-15: Short Term Vietnam Headwinds, But Long Term Value Intact

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - Short Term Vietnam Headwinds, But Long Term Value Intact

Thai Beverage (SGX:Y92)'s 1QFY9/20 net profit (+13.6% y-o-y) was in-line with expectations at 32.7%/32% of our/consensus FY20F due to higher margins.
Future quarters could be hit by sluggish sales growth in Vietnam, while Covid-19 outbreak could impact 2H20F. We cut FY20-22F EPS.

Reiterate ADD due to its longer-term outlook, but with a lower SOP-based Target Price of S$0.90 as we cut forecasts and lower SABECO valuations.

Thai Beverage (SGX:Y92)'s 1QFY9/20 revenue rose 4% y-o-y to THB75.7bn on higher Thai spirits (+7% y-o-y, due to demand and stocking activities) and beer (+13.5% y-o-y) volumes, mitigating the drop in Myanmar spirits and SABECO’s volumes of c.15% and 6% y-o-y, respectively.
1Q EBIT rose 26% y-o-y on higher GP margins (largely due to better spirit EBIT margins due to a better product mix) and cost control in all divisions (lower A&P and selling costs). This, coupled with lower effective group tax rates (1Q19: c.13%), led to core net profit growing by 13.6% y-o-y.

Thai Beverage believes that Thai government spending will continue at least until Mar/Apr 2020; it also does not believe agents are sitting on excessive inventory levels; hence, we remain optimistic on 2QFY20F’s domestic demand.
On a macro level, we think the Covid-19 epidemic could have repercussions from 2HFY20F, if government spending does not continue.

In its 4Q19 briefing, SABECO mentioned that Jan 20 sales volumes were impacted by a new drunk driving decree (effective Jan 2020) which sees stiffer penalties for drunk motorcyclists and drivers. The Coronavirus epidemic was an additional short-term woe. SABECO seemed slightly subdued in terms of the FY20F sales growth outlook.

We turn conservative on FY20F y-o-y growth as we think SABECO’s sales could be impacted. We lower FY20/21/22F revenue by 4.0%/2.9%/2.6% and net profit by 5.7%/5.1%/4.7% as we cut SABECO’s FY20-22F revenue.
Besides earnings cuts, we believe weakness in SABECO’S business and macro headwinds could weigh on any appetite for an IPO of Thai Beverage’s beer business, which could lead to potential delays.

Our SOP-based Target Price is lowered to S$0.90, post our EPS cuts and as we discount our valuation of SABECO due to the near-term Vietnam weakness. We still like Thai Beverage for its longer-term prospects and reiterate our ADD call on the stock.
Catalysts are higher revenue and margins, and M&As involving SABECO/F&N (SGX:F99)/Frasers Property (SGX:TQ5).
Risks are weaker revenue and margins for the domestic business and SABECO.
See Thai Beverage Share Price; Thai Beverage Target Price; Thai Beverage Analyst Reports; Thai Beverage Dividend History; Thai Beverage Announcements; Thai Beverage Latest News.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-15

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