Thai Beverage - UOB Kay Hian 2021-02-15: 1QFY21 Solid Earnings; Awaiting A Potential Listing

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - 1QFY21 Solid Earnings; Awaiting A Potential Listing

Thai Beverage announced net profit of Bt8.5b, up 0.5% y-o-y, above expectations. The spirits volume remained resilient while cost control measures continue to improve margins.
A potential spin-off listing of the group’s beer business, ASEAN’s leading brewery by volume, looms on the horizon. It could help unlock value for Thai Beverage.
Maintain BUY with a 12% higher target price of S$0.95.

Thai Beverage (SGX:Y92) reported 1QFY21 (Oct 2020 to Dec 2020) net profit of Bt8.5b, up 0.5% y-o-y, forming 33% of our estimates, above expectations. The continued cost control efforts have allowed profitability to remain impressive, given the y-o-y comparison to a pre-COVID-19 high base year end period in 1QFY20.
1QFY21 results is a one-time release of the group’s quarterly financial statements in view of the proposed spin-off listing of BeerCo (Thai Beverage’s beer business).

1QFY21 turnover was lower at Bt71.8b (-5.1% y-o-y) due to the impact of the new wave of COVID-19 cases. However, Thai Beverage noted the expansion of private consumption following the gradual recovery in household purchasing power and support from government stimulus measures in 1QFY21.
Cost control efforts continue to be in place, the SG&A expense-to-revenue ratio fell to 13.3% in 1QFY21 (-1.5ppt y-o-y) and we estimate improved EBITDA margins of 20.1% (+3.0ppt y-o-y; +1.9ppt q-o-q).

Spirits volume was flat (+0.3% y-o-y; +10.5% q-o-q) while revenue increased slightly (+1.0% y-o-y). Margins saw a slight increment and EBITDA margin was at 26.5% in 1QFY21 (+1.0ppt y-o-y; +2.2 ppt q-o-q).

Beer volume (-11.6% y-o-y; +10.5% q-o-q) is still in a gradual recovery on a q-o-q basis, though 1QFY21 is seasonally stronger. Vietnam was affected by adverse weather conditions in Oct-Nov 20. Thai Beverage continues to make inroads in managing costs in Vietnam, seeing cost savings in transportation activities, lower provision for bonuses and more flexible compensation structures.

For the food segment, 1QFY21 recorded a net profit, reversing from a small net loss position in 4QFY20 by enhancing home delivery and takeaway options, as well as implementing cost-saving projects. The non-alcoholic beverage (NAB) business recorded EBITDA growth of 11.0% y-o-y.

A potential public offering could be up to approximately 20% of the issued shares of BeerCo. Thai Beverage also noted reasons for the proposed listing including:
1. significant growth potential in the beer business;
2. improvement of the financial position of Thai Beverage; and
3. unlocking shareholder value.
There is no certainty or assurance that the proposed spin-off listing will materialise. We note that ASEAN peers in the beer business trade at approximately 17x 2021F EV/EBITDA, while larger APAC peers trade at 20x 2021F EV/EBITDA.

Thai Beverage also released 1QFY21 results for BeerCo. The entity recorded PATMI of S$77.4m (+72.4 % y-o-y). According to the group, BeerCo is the leading brewer in ASEAN by volume, with 23.4% of market share.

Thai Beverage also announced the subscription of rights shares issued by its associate Frasers Property (SGX:TQ5) financed by an external loan of approximately S$360m.

We account for better margins given better-than-expected cost management, whilst factoring increased financing from the Frasers Property rights issue.

We raise our peg for the beer business to 18x EV/EBITDA, slightly higher than the ASEAN peers average but lower than that of APAC peers, given Thai Beverages strong presence in ASEAN. This would value the beer business at approximately US$7b which a potential listing could help unlock.
Thai Beverage's valuation:
- The spirits business at 17x EV/EBITDA, in line with global peers;
- the beer business at 18x EV/EBITDA;
- the NAB business at 2.5x EV/sales; and
- the food business at 14x EV/EBITDA, in line with local peers.
- Frasers Property and F&N (SGX:F99), in which Thai Beverage owns 28% each, are valued based on market value.
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's share price catalyst: M&As or potential spin-off listing.

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-15

SGX Stock Analyst Report BUY MAINTAIN BUY 0.950 UP 0.850