Thai Beverage - CGS-CIMB Research 2020-04-17: Dry In 2020; Be Back For Drinks Later


Thai Beverage - Dry In 2020; Be Back For Drinks Later

  • Thai Beverage (SGX:Y92)’s main markets have effected various levels of movement controls since Mar 20, with Thailand even imposing periodic alcohol bans in Apr.
  • Hence, we think more of Thai Beverage’s divisions will likely be affected. We now expect FY9/20F core EPS to fall by 11.7% y-o-y.
  • YTD Thai Beverage share price dip likely priced in some Covid-19 impact, but lack of near-term catalysts leads us to downgrade it to a HOLD, with a lower Target Price of S$0.70.

Why it may not be as bad as GFC or 2011

  • Post a c.23% fall in Thai Beverage share price YTD, Thai Beverage is trading at a forward P/E of 16x, likely pricing in the potential impacts of Covid-19, in our view.
  • We do not think Thai Beverage deserves to trade at its trough valuations of c.9.7x and 9.5x as seen during the global financial crisis (GFC) and at end-2011 respectively, as its earnings base has doubled and diversified (from a mainly domestic Thai business) since it embarked on several M&As and successfully expanded the market share and turned around its Thai beer segment since FY15. However, in view of sluggish near-term volumes/lack of M&A catalysts, we downgrade Thai Beverage to HOLD, with a new SOP-based Target Price of S$0.70 (from S$0.90).

Of movement controls and alcohol bans

  • According to news sources, all Thailand provinces will implement periodic alcohol bans in the month of Apr, while at end-Mar, the Vietnam government ordered a 15-day period of isolation nationwide. Back in Feb 20 (post Thai Beverage’s 1Q20 results), we left Thai volumes (and our ADD call) unchanged as we did not anticipate alcohol bans in Thailand. See Thai Beverage - CGS-CIMB 2020-02-15: Short Term Vietnam Headwinds, But Long Term Value Intact. But with this new development, we believe that most of Thai Beverage’s divisions could now see slower sales in the coming quarters, especially in 3QFY9/20F.

Thai volumes mixed, Vietnam beer slows in Feb; 2QFY20F preview

  • According to Thailand’s government statistics, 2MCY20 domestic beer volumes rose c.5% but overall spirits volumes (selected white and blended spirits) fell c.14% y-o-y. In Vietnam, as at 1 Mar 2020, cumulative industrial beer production fell 19.7% y-o-y.
  • We estimate 2QFY9/20F revenue to fall 11.6% y-o-y to c.THB62bn, led by lower Thai spirit and Sabeco beer volumes, while core net profit to fall 5.9% y-o-y to THB5.5bn. We believe 1HFY9/20F core net profit grew 5.6% to THB14bn, buoyed mostly by a stellar 1QFY20F.

Time to moderate FY20-22F EPS

Cezzane SEE CGS-CIMB Research | 2020-04-17
SGX Stock Analyst Report HOLD DOWNGRADE ADD 0.70 DOWN 0.900