Thai Beverage - DBS Research 2020-05-18: Key Takeaways From Post Results Call

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - Key Takeaways From Post Results Call

Comforted with Thai Beverage management’s focus on cost control in the face of uncertain and challenging times.
Post lifting of alcohol sales ban in Thailand, May 2020 sales expected to be similar, if not better, vs May 2019.
Steps taken to face COVID-19 impact with strength in off-trade and wide brand repertoire.
Maintain BUY and S$0.90 Target Price.

Thai Beverage (SGX:Y92) hosted its usual post results conference call on Friday evening, 15 May 2020, a day after the release of its 2QFY20 results the previous night.
Thai Beverage's 2QFY20 net profit tumbled 14.5% y-oy to Bt4.95bn, largely due to one-off income tax expense and stamp duty from beer restructuring amounting to Bt1.13bn. Excluding this, attributable net profit would have been 5% y-o-y higher at Bt6.08bn. Supported by the strong 1QFY20 results, Thai Beverage's 1HFY20 attributable net profit was up 1.3% to Bt14.5bn.
Please see our results note dated Thai Beverage - DBS Research 2020-05-15: Betting On Alcohol To Bring Cheer During Gloomy Days for further details and comments.
The post results call centered around its Spirits and Beer operations in Thailand, Myanmar and Vietnam (Sabeco).

Volume decline came from white spirits on absence of trade promotions in 2020, which was scuttled/ deferred by the onset of COVID-19. Brown spirits seems to have maintained the strong momentum seen in 1Q20, posting positive growth.
Management highlighted that while Spirits sales were down by 3.9% y-o-y, the segment’s attributable net profit improved by 9.5%. benefitting from its focus to rein in costs.

The ban of alcohol was progressively put in place by the various provincial governments starting at the end of March and early April 2020. This was eventually lifted on 3 May, and at this juncture, only 2 provinces have some restrictions in place.
Management expects sales in May 2020 to perform as well, if not better than May 2019.

There’s no denying that COVID-19 has had an impact on every aspect of Thai Beverage’s business. Management emphasised its focus on cost control measures and measured spending on advertising and promotion. With the expected shift in consumption from on-trade to off-trade, there is now greater emphasis on the latter.
Furthermore, on-trade marketing and promotional activities tend to require heavier resources, such as mini-concerts, promoters, etc. With the shift in consumption patterns, management acknowledged that they would have to work on creating new promotions and activities to further enhance its brands in the off-trade segments.

This could bode well for Thai Beverage’s sales in Thailand, which is predominantly off-trade. We understand that about 5% and 20% of its spirits and beer sales are on-trade, which would be less impacted assuming social distancing continues.

Thai Beverage’s domestic beer sales saw an improvement of 1.3% y-o-y in the quarter, following on from 1Q20’s robust 13% increase. This is attributed to successful campaign in 2019, which helped beer sales gain traction, and beer market share has been increasing for the past consecutive six months.

There are three debentures amounting to Bt4.69bn, Bt31.6bn and Bt11.2bn maturing in Sep 2020 and Mar 2021 (for the latter two), respectively.
Management has indicated that the debenture due in Sep 2020 would be repaid with operating cashflows, while those next year would likely be refinanced with long term bank loans or reissuance of new notes. Management believes it has no issues given its current credit rating with its existing banks. This is in line with our expectations.

We maintain our view that with April sales would have been the worst with the alcohol ban in Thailand. Sales should witness a progressive, albeit gradual recovery as life reverts back to normalcy. With Thai Beverage’s sales skewed towards the off-trade segments and its wide repertoire of brands across different price points (particularly for Spirits), it should be better positioned to withstand headwinds.
While sales would inevitably be affected in an economic slowdown, management’s focus on cost control bodes well.
See Thai Beverage Share Price; Thai Beverage Target Price; Thai Beverage Analyst Reports; Thai Beverage Dividend History; Thai Beverage Announcements; Thai Beverage Latest News.
We maintain our BUY recommendation with Target Price at S$0.90. We expect earnings to slip marginally by 6% in FY20F, before rebounding 16% in FY21F.

Andy SIM CFA DBS Group Research | Alfie YEO DBS Research | https://www.dbsvickers.com/ 2020-05-18

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