THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)
Thai Beverage - 1QFY20 In High Spirits But Cautious On Challenges Ahead
- Thai Beverage (SGX:Y92) reported 1QFY20 net profit of Bt8.4b, up 13.6% y-o-y, ahead of expectations. Spirits sales volume grew strongly, with domestic volume up 7% y-o-y, while margins were stronger on the back of lower raw material prices and admin and selling expenses.
- COVID-19 will have a larger impact on on-premise trade but Thai Beverage noted a low proportion of on-premise trade for its beverage business.
- Maintain HOLD. Entry price: S$0.75.
Thai Beverage 1QFY20 RESULTS
1QFY20 adjusted net profit grew strongly.
- Thai Beverage (SGX:Y92) reported 1QFY20 adjusted net profit of Bt8.4b, up 13.6% y-o-y. This represents 33% and 32% of our and consensus full-year estimates respectively, ahead of our forecasts.
Strong growth on better margins and higher volumes.
- Group revenue was up 4.2% y-o-y in 1QFY20, boosted by higher sales volumes from the spirits and beer segments. The weaker contributions from associates of F&N and FPL were offset by better operating margins. Group EBITDA margin (excluding associates) grew to 17.1% (1QFY19: 14.8%).
…but challenges on the horizon.
- Thai Beverage is facing the current COVID-19 situation as well as regulatory changes in the Vietnam beer industry. Management noted limited on-premise sales which could help to cushion the fall in demand for beverage sales.
STOCK IMPACT
Sprits: A slew of wins.
- The spirits segment was a beneficiary of several positive factors. These include higher domestic sales volume of about 169m litres, up 7% y-o-y, and was attributed to consumption-boosting initiatives. ASP also grew slightly as certain brands of brown spirits had enacted price increases.
- Cost-wise, a substantial factor was lower raw material costs. Raw material cost-to-turnover ratio was at 5.1%, dropping 1.6ppt y-o-y, benefitting from the low molasses prices of the previous crop. The group also saw lower selling and admin costs as well as one of the best quarters for white spirits. Segment net margin increased to 20.7% (1QFY19: 18.2%).
Beer: Good improvement but not quite there yet.
- Domestic sales volume was 253m litres, up 13.5% y-o-y, while Sabeco saw a weaker quarter. Management noted its domestic market share has gone up slightly by 2ppt since Apr 19 as the domestic beer benefitted from marketing campaigns which allowed it to grow stronger than the domestic beer industry. EBITDA margin grew to 9.8% (1QFY19: 8.0%) while attributable profit dipped due to a decrease in net profit from Sabeco.
Food: Slightly weaker; NAB: Turned profitable.
- Food revenue was flat at Bt3.9b (+1.5% y-o-y) while the non-alcoholic beverage (NAB) segment turned profitable in the quarter, recording a small net profit of Bt27m with total sales volume up marginally to 399.4m litres (+1.9% y-o-y).
Slightly cautious on near-term challenges.
- The COVID-19 situation will likely be a dampener for on-premise trade. Management noted that its food segment would be most susceptible to falling demand from COVID-19, followed by the beer segment, in which premium brands will see a higher impact. The spirits segment will see limited impact on a small proportion of premium brown spirits while white spirits are off-premise purchases.
- We are slightly more cautious on the outlook, given that the new drink-driving regulation in Vietnam will also impact Sabeco from 2QFY20.
EARNINGS REVISION/RISK
- None.
VALUATION/RECOMMENDATION
Maintain HOLD.
- We value:
- the spirits business at 17x EV/EBITDA, in line with global peers’;
- the beer business at 15x EV/EBITDA, in line with peers’ average;
- the NAB business at 2x EV/sales, a slight discount to peers’ 3.0x; and
- 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.
- See Thai Beverage Share Price; Thai Beverage Target Price; Thai Beverage Analyst Reports; Thai Beverage Dividend History; Thai Beverage Announcements; Thai Beverage Latest News.
SHARE PRICE CATALYST
- Consumption growth from government stimulus.
- Improved profitability for the beer segment.
- M&As.
Lucas Teng
UOB Kay Hian Research
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https://research.uobkayhian.com/
2020-02-17
SGX Stock
Analyst Report
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