THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)
Thai Beverage - Back To Happy Hour
- Thai alcohol volumes rose y-o-y in Jul 20; we think upcoming government packages may aid consumer purchasing power in FY21F.
- The number of new daily COVID-19 cases in Thailand and Vietnam (Thai Beverage’s major markets) is dwindling. This bodes well for a recovery in those markets.
- Thai Beverage's share price is trading below its -2 s.d. levels, making it an opportune time to accumulate the stock, in our view.
- Upgrade Thai Beverage to ADD with unchanged Target Price.
Falling COVID-19 cases and government stimulus prompt upgrade
- We think near-term conditions have improved for longer-term investors who are looking to revisit recovery plays and ride out the political uncertainties in Thailand. Thai Beverage's share price is trading below its 5-year -2 s.d. level. Furthermore, the number of new daily COVID-19 cases in Thai Beverage (SGX:Y92)’s major markets (Thailand and Vietnam) is dwindling. Thailand’s upcoming stimulus measures may support consumer purchasing power in FY21F.
Thai volumes pick up in Jul while Vietnam volumes slow
- In Jul 20, selected Thai domestic liquor volumes increased 17.4% while domestic Thai beer volumes rose 26.5% y-o-y, according to Thailand’s Office of Industrial Economics (OIE). 7M20 volumes were still lower y-o-y (spirit consumption fell c.9%; beer consumption fell 14.6%) but y-o-y declines bottomed in Apr 2020.
- In Vietnam, estimated Jul 20 industrial beer production fell by 12.6% y-o-y, likely due to the second COVID-19 wave, in our view. 7M20 Vietnam beer volumes are down by 14.6% y-o-y.
- We think volumes in both Thailand and Vietnam may improve as new daily COVID-19 cases dwindle. On 23 Sep, Thailand had three new COVID-19 cases and Vietnam had none.
Thai stimulus may boost consumer purchasing power akin to 2019
- In 2019, Thailand’s domestic alcoholic industries improved y-o-y due to government’s stimulus measures (i.e. state welfare smart cards, income guarantee scheme for farmers, Chim-Shop-Chai (Eat-Shop-Spend) programme). We understand that the government is drafting stimulus plans in order to boost domestic consumption (including a c.THB51bn cash handout stimulus plan in Oct-Dec 2020 subject to cabinet approval). This may lower cost of living and bodes well for consumer purchasing power in FY21F.
Forecast changes
- We lift our Thai Beverage's FY20F EPS by 4.8% on the back of higher revenue assumptions as we now expect spirits volumes to only fall 3.3% y-o-y (vs. 8% previously) and beer volumes to decline by only 15.5% y-o-y (vs. 16.6% previously). We also tweak our cost structure for FY20F as we note that Thai Beverage has been optimising costs in 9MFY09/20.
- Our FY21-22F EPS forecasts are relatively unchanged. In FY21F, we assume revenue growth of 8.5% and core net profit growth of 14.3%. This is supported by total spirit (Thailand and Myanmar) sales volume growth of 9.8% and beer (Thailand and Vietnam) volume growth of 17.7%.
Thai Beverage's share price back at lower levels
- Thai Beverage's share price is down 34.8% YTD and from its YTD peak of S$0.90 to underperform the STI’s 23.7% decline YTD. The share price is now closer to its 2018 low of S$0.575 when its Thai domestic alcohol sales volume fell on the back of
- weaker discretionary purchasing power,
- an increase in product prices after the implementation of higher excise tax rates at the end of 2017 and an elderly fund tax at the beginning of 2018.
- Subsequent to the c.35% YTD fall in its share price, Thai Beverage is trading at a forward P/E of 13.9x, below its 5-year -2 s.d. level of 15.4x. We deem that the market has priced in the effects of COVID-19 on Thai and Vietnam alcohol volumes as well as the potential political instability in the Thai market.
Upgrade Thai Beverage to ADD
- We maintain our 15.8x EV/EBITDA multiple for the spirit business, i.e. an implied 25% discount to regional spirit average of 21x. We also keep our 10.5x EV/EBITDA multiple for the beer business which is an implied 25% discount to regional beer peers’ average of 14x. These are to account for the near-term political uncertainties in Thailand and the potential uneven recovery in volumes due to COVID-19.
- We also maintain our 30% discount to Thai Beverage’s acquisition price (VND320k/share) for SABECO to account for the potential sluggish recovery in the Vietnam market and delays in any M&As involving its stake in SABECO.
- Our Target Price of S$0.70 for Thai Beverage implies a target 16.7x CY21F P/E which is still s 5-year average of 21.7x. As the stock yields an upside potential of c.19% to our SOP-based Target Price, we upgrade Thai Beverage from Hold to ADD. See PDF report attached below for SOTP valuation details.
- See Thai Beverage Share Price; Thai Beverage Target Price; Thai Beverage Analyst Reports; Thai Beverage Dividend History; Thai Beverage Announcements; Thai Beverage Latest News.
- Potential re-rating catalysts include swifter recovery in volumes and the resumption of M&As involving SABECO, F&N (SGX:F99) and Frasers Property (SGX:TQ5).
- Downside risks: sluggish volume recovery and lower dividends.
- See PDF report attached below for complete analysis.
Cezzane SEE
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-09-23
SGX Stock
Analyst Report
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