Thai Beverage - Phillip Securities 2021-02-15: Hail Spirits and Cost Savings

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - Hail Spirits and Cost Savings

Thai Beverage (SGX:Y92)'s 1QFY21 (Oct 2020 to Dec 2020) revenue and PATMI were within expectations, at 27%/31% of our FY21e forecasts. Revenue is down 5%, PATMI up 0.5% y-o-y.
Spirits volume was up a modest 0.3%, with PATMI rising 3%. Spirits is 84% of group PATMI.
Beer volumes dipped 11.6% y-o-y but PATMI tripled from aggressive cost-cutting.
Downgrade Thai Beverage to ACCUMULATE on account of the recent Thai Beverage's share price appreciation.

Volume growth in spirits was stable, improving 0.3% y-o-y despite the pandemic in Thailand. Spirits are consumed off-trade or in homes and less affected by closures of entertainment or retail channel. In comparison beer volumes in Thailand fell 6.5% y-o-y.

The major driver to earnings growth has been aggressive cost cuts. Total administration and distribution cost for the group contracted 10.6% or THB1.6bn. Bulk of the operating cost cuts came from beer division, where slashed a massive THB1.3bn of cost (or down 26.5% y-o-y.

Another weak quarter with volumes down 11.6% y-o-y. A combination of Decree 100, a typhoon in October and late Tet (10 days later from a year ago).

1QFY21 PATMI contribution from associates, Frasers Property (SGX:TQ5) and F&N (SGX:F99), was down 58% y-o-y to THB433mn. There was limited disclosure but lower property development income and weakness in hospitality and retail operations.

The re-occurrence of COVID-19 in Thailand in December renewed restrictions and lockdowns on gatherings and entertainment activities. On-trade channels were more affected as reflected by soft beer consumption. We expect a gradual recovery in alcohol consumption especially from pandemic and alcohol ban affected FY20. For Sabeco, volumes should improve as the impact from Decree 100 wanes off.
With regards to BeerCo listing, FY20 PATMI was S$198mn. If we assume 30x P/E, similar to global peers, the market cap will be S$5.9bn. Assuming 20% stake is sold, interest savings (after tax) is around S$33mn (THB750mn). This is around 3% of our FY21e PATMI. But the 20% dilution will shave around THB250mn off PATMI.
Another development is the 37 to 100 rights shares for issue by Frasers Property (SGX:TQ5) at $1.18 per shares. See Frasers Property's announcements. Thai Beverage owns 824.847mn shares (or 28.12%) of Frasers Property. The company has given an irrevocable undertaking to subscribe for their allotted 305.193mn shares. Therefore, Thai Beverage will fork out $360mn for the rights.

We downgrade Thai Beverage to ACCUMULATE due to the recent appreciation of Thai Beverage's share price. The BeerCo listing impact on Thai Beverage earnings is immaterial. Any rally due to the BeerCo listing is unwarranted, in our opinion. Thai Beverage will benefit from a rebound in consumption post-pandemic.
Our target price for Thai Beverage is unchanged at S$0.86 as we leave FY21e forecast unchanged. Our target price is based on 18x earnings, its 5-year average. We expect volumes to recover this year worth the absence of lockdowns and alcohol bans.
On the potential listing of BeerCo, if we assume a 30x historical P/E listing and 20% sales, interest savings is around 3% of FY21e PATMI. However, around a third of the interest savings will be offset by the S$360mn required to subscribe for associate Frasers Property rights issue. Another third by a dilution in beer earnings.
See Thai Beverage Share Price; Thai Beverage Target Price; Thai Beverage Analyst Reports; Thai Beverage Dividend History; Thai Beverage Announcements; Thai Beverage Latest News.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-02-15

SGX Stock Analyst Report ACCUMULATE DOWNGRADE BUY 0.860 SAME 0.860