Thai Beverage - DBS Research 2020-08-17: COVID-19 Resilience

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - COVID-19 Resilience

Thai Beverage's 9M20 business update shows resilient revenue and EBITDA performance despite COVID-19.
Drop in 3Q20 revenue not as dire as expected; market worries unfounded and shows resiliency of consumption.
Spirit and NAB registered positive EBITDA growth for 9M20.

Thai Beverage (SGX:Y92)'s 9M20 business update shows operating performance is tracking well within expectations; 9M20 EBITDA at 85% of full-year forecast, similar to FY19. Thai Beverage released its 9M20 business update, which is tracking within our expectations based on revenue and EBITDA. Group revenue for 9M20 declined by 7.4% y-o-y to Bt190.1bn, at 77% of our full-year forecast for FY20, similar to FY19.
Group EBITDA from normal operations grew a marginal 2.2% y-o-y to Bt32.9bn in 9M20, driven by growth in Spirits (+4.9%) and Non-Alcoholic Beverages (NAB; +301.6%), offset partially by Beer (-9.3%) and Food (-46.9%). Including contributions from F&N/ FPL (Frasers Property Limited), EBITDA slipped marginally by 3% to Bt35.2bn.

Thai Beverage's group revenue for 3Q20 was down 15.4% y-o-y to Bt53bn, with declines across all segments, as the crest of the COVID-19 lockdown was in this quarter.
Recall that majority of provinces in Thailand had banned sales of alcohol in April. Considering April is supposed to be a peak month that coincides with Songkran (which was not celebrated this year due to social distancing), this decline in revenue was smaller than expected.
While revenue for all its business segments dropped, the least impacted were Non-Alcoholic Beverages (NAB) and Spirits, which recorded respective declines of 5.4% and 7.5% y-o-y respectively. Food and Beer segments registered larger drops of 36.2% and 21.3% y-o-y in 3Q20, respectively.

Revenue for Spirits dipped by 7.5% y-o-y in 3Q20 to Bt24.2bn, while for 9M20, revenue was only marginally down by 0.5% to Bt88.5bn. Sales volume declined by 2.5%/ 6.3% for 9M20/ 3Q20, respectively. The drop in sales volume was not as dire as expected, given the temporary ban on alcoholic beverages from April to early May. In fact, sales of spirits in Thailand has recovered in May and June, and this covered most of the losses in April.
Spirits EBITDA for 9M20 grew by 4.9% to Bt21.56bn, though a slight decline of 4% y-o-y to Bt5.8bn in 3Q20. EBITDA margins for 9M20/ 3Q20 stood at 24.4%/ 24%, an improvement from same period last year (23.1% for both 9M19/ 3Q19), which we believe arose from control in selling expenses.

The Beer segment was also impacted by the temporary ban on sale of alcoholic beverages, and lockdowns in both Thailand and Vietnam. For 9M20, sales volume dipped by 15.5% to 17.4m hectoliters (hls), largely due to a dip in sales from Sabeco in Vietnam as Sabeco was impacted by imposition of strict drink driving laws earlier in 2020. In 3Q20, sales volume dipped by 20% y-o-y, to 5.32m hls, an improvement from 2Q20’s 28% y-o-y drop. Beer sales volume decreased only marginally despite the alcohol ban, while its market share reached a record high, to c.41-42%.
9M20/ 3Q20 Beer EBITDA was Bt8.83bn/ Bt3.05bn, -9.3%/ - 11.5% y-o-y. Despite lower EBITDA, margins for 9M20/ 3Q20 crept up to 11.1%/ 13.6% (vs 9M19: 10.5%; 3Q19: 12.1%), due to cost savings initiatives, which likely arose from lower advertising and promotional spend as well as lower cost of raw materials.

NAB has continued to turnaround, as shown in the past 5 quarters since 2Q19. While revenue for 3Q20 declined by 5.4% to Bt3.8bn, 9M20 revenue posted a marginal improvement of 0.5% y-o-y to Bt12.48bn. EBITDA margin continued to improve to 13.7%/ 12.9% for 9M20/ 3Q20, respectively, arising from cost control measures, coupled with gains on back of insurance claims. As a result, 9M20 EBITDA was Bt1.7bn.

Not surprisingly, its Food segment was the most impacted, arising from COVID-19. Revenue for 9M20/ 3Q20 dropped by 14.7%/ 36.2% y-o-y, respectively, arising from the prohibition of dine-in at restaurants and food outlets in Thailand. The restrictions lasted from April to mid-May. As a result, EBITDA for Food segment slumped by 46.9%/ 87.7% y-o-y for 9M20/ 3Q20, arising from operating deleverage, to Bt751m/ Bt59m.

Thai Beverage’s balance sheet position continued to improve sequentially, as we envisaged. Net gearing improved to 1.13x as of Jun 2020, from 1.3x in Sep 2019. Net debt to EBITDA also crept up marginally to 4.18x in Jun 2020, from 4.33x in Sep 2019. The group has made an early loan repayment of Bt5.7bn since 1 July with its excess cashflow. We believe this includes a 2-year debenture amounting to Bt4.7bn, which management has earlier indicated it would repay from its internally generated cashflow. We continue to adopt the stance we should continue to see its net gearing decline and loans repaid gradually with its strong cashflow.

We maintain our BUY recommendation for Thai Beverage with Target Price unchanged at S$0.90. The 9M20 operating results supports our earlier thesis that alcohol consumption should be less impacted vis-à-vis other consumer discretionary spending. Our forecasts are intact, projecting 8%/ 6% contraction in revenue and net profit for FY20F.
See Thai Beverage Share Price; Thai Beverage Target Price; Thai Beverage Analyst Reports; Thai Beverage Dividend History; Thai Beverage Announcements; Thai Beverage Latest News.
Thai Beverage is trading at 15.8x/ 13.6 FY20F/ 21F PE, which seems compelling at -2SD of its historical 5-year average.

Andy SIM CFA DBS Group Research | Alfie YEO DBS Research | https://www.dbsvickers.com/ 2020-08-17

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