Thai Beverage - UOB Kay Hian 2021-05-17: 2QFY21 Robust Earnings; Drinks Priced At A Discount

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - 2QFY21 Robust Earnings; Drinks Priced At A Discount

Thai Beverage announced 2QFY21 core net profit of Bt5.9b, in line with expectations. Spirits volume in Thailand remained flat on a y-o-y basis while the group was only marginally affected by the political situation in Myanmar. Management noted encouraging market share gains in the Thailand beer market in spite of the COVID-19 restrictions for on-premise sales.
Thai Beverage is trading at 15.9x FY21F P/E, at a discount of -1.5 standard deviation to its mean P/E. Maintain BUY with an unchanged target price of S$0.92.

Thai Beverage (SGX:Y92) reported 2QFY21 core net profit of Bt5.9b, down slightly (-2.5% y-o-y), forming 24% of our estimates, in line with expectations. Headline profits were up 19.7% y-o-y compared with 2QFY20, when a one-off beer business restructuring cost was realised.
Thai Beverage declared a higher interim dividend of Bt0.15 per share (1HFY20: Bt0.10),

2QFY21 turnover was lower at Bt59.5b (-3.2% y-o-y) given the impact from the new wave of COVID-19 cases. The resurgence of COVID-19 cases has inevitably raised safety concerns among consumers about dining out and drinking at restaurants, though the group’s spirits segment remains resilient given its off-trade nature of consumption. Advertising and promotion expenses continued to decline due to cost control efforts. SG&A expense-to-revenue ratio fell to 16.3% in 2QFY21 (-0.8ppt y-o-y) while operating margins improved to 13.9% (+1.0ppt y-o-y).

Thai Beverage's gearing remained stable at 1.20x (vs 1.21x as of FY20). The group noted that the drawdown on a bridging loan of Bt40b for refinancing had a manageable interest cost of 1.7%.

The spirits segment recorded a slight sales volume decline of 2.9% y-o-y to 165m litres. Despite the lower volumes, segment operating margin held up well at 23.0% in 2QFY21, higher by 1.3ppt y-o-y while net profit grew 4.3% y-o-y. Management noted that sales volume of Thailand spirits were flat on a y-o-y basis, while the decline was mainly felt from Myanmar spirits, in which headline sales were down 10-15% y-o-y due to the ongoing political situation.
On an operational basis, Thai Beverage highlighted that the conditions in May have improved substantially compared with Feb 21 where there was a disruption in the banking system which affected cash collection. The company does not expect to make any provisions for its Myanmar spirits business given the improved profitability since its acquisition in 2017.

The overall raw material price increase due to the rise in molasses price has resulted in a larger expense/revenue ratio of 7.6% in 1HFY21 (vs 5.5% in 1QFY21), though gross margins of 34.1% in 2QFY21 (+0.2ppt q-o-q, +0.3ppt y-o-y) remain contained due to lower packaging costs.
As for its excise tax, Thai Beverage has not received notice of any proposed hike in excise tax, although management noted its policy of margin maintenance if a hike in tax were to occur. The last alcohol excise tax hike was in 2017.

Overall, beer sales volume was up (+4.4% y-o-y), supported by higher volumes at Sabeco while revenue of Bt23.8m increased marginally by 0.4% y-o-y. Sabeco sales volume increased 16.0% y-o-y while beer sales volume in Thailand decreased 9.5% y-o-y with the resurgence in COVID-19 cases in Thailand. Operating margins were higher at 8.4% (+2.4ppt y-o-y) as the group continues to manage its costs.
Management highlighted that Thai Beverage gained market share in Thailand during the quarter as its efforts to strengthen distribution channels have been successful in ensuring that beer products are well stocked.

The food segment slipped back to a net loss position in 2QFY21 due to the resurgence of the pandemic, though this was partially mitigated by efforts to enhance home delivery and takeaway options. The non-alcoholic beverage (NAB) business recorded a net profit improvement due to prudent cost management even though volumes contracted (-15.9% y-o-y).

Maintain BUY on Thai Beverage with SOTP-based target price of S$0.92. We value:
- the spirits business at 17x EV/EBITDA, lower than global peers,
- the beer business at 18x EV/EBITDA, in line with ASEAN peers,
- the NAB business at 2.5x EV/sales, and
- the food business at 14x EV/EBITDA, in line with local peers.
Frasers Property (SGX:TQ5) and F&N (SGX:F99), in which Thai Beverage owns 28% each, are valued based on market value.
On valuation grounds, the counter remains attractively priced at 15.9x FY21F P/E, at -1.5 standard deviation to its mean P/E.
See

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-17

SGX Stock Analyst Report BUY MAINTAIN BUY 0.920 SAME 0.920