Thai Beverage's FY21 - Phillip Securities 2021-11-28: Lockdown Hangover Continues


Thai Beverage's FY21 - Lockdown Hangover Continues

  • Thai Beverage (SGX:Y92)'s results were below results expectations. FY21 revenue and PATMI were 90%/91% of our FY21e forecasts. 4Q21 EBITDA was down 34% y-o-y to Bt7.6bn.
  • Spirit volumes declined 19% y-o-y in 4Q21. Weakness was due to promo sales a year ago and dampening consumer sentiment in Thailand.
  • We lower FY22e EPS by 10% to S$0.0425 as we reduce PATMI on expectations of slower recovery in consumer spending. Forex assumptions have also been cut following the weakness in the Thai baht. We downgrade our recommendation for Thai Beverage from BUY to ACCUMULATE with a lower target price of S$0.765 (previously S$0.86). Our target price for Thai Beverage is based on 18x FY22e earnings, its 5-year average.

The Positive

Healthy cash flows and higher dividend.

  • Despite the tough operating conditions, Thai Beverage generated free cash flow of Bt28.7bn (S$1.17bn). The final dividend was Bt0.35. FY21 dividend per share was Bt0.50 (FY20: Bt0.46), a 51% payout ratio.

The Negative

Plunge in spirit sales.

  • 4Q21 spirit volumes declined 19% y-o-y to 139.3mil litres. It was a surprise as volumes in the prior quarter were a strong 161.6mil litres. Reasons for the decline were softer consumer sentiment and a trade promo for white spirits in July 2020. The promotion was not repeated this year.


  • Recovery is underway but the pace may remain tepid in the near term. The lockdown is taking a toll on consumer sentiment and income. The impact of the re-opening of the borders and nightlife entertainment and economic recovery may be more material only in 2H22.
  • Thai Beverage offset higher cost pressure with a price increase for white spirits, in October this year. Due to the high market share, the price elasticity of white spirits is not high.

Downgrade to ACCUMULATE from BUY with lower target price of S$0.765 (previously S$0.86)

Thai Beverage's Business Updates

  • The following are some highlights of Thai Beverage's analyst briefing:
    1. Myanmar: The COVID-19 situation is getting better and vaccination rates are improving. The focus is now on trade receivables collection and currency. More emphasis is being placed on trade debtor ageing days and collection. Before the pandemic, the kyat was 1,300-1,400 but depreciated to 2,000 in July. With exchange controls on exporters, the kyat is now 1,700-1,800. Currency below 2,000 is bearable. A weak currency raises import and production costs. Volumes are down in FY21 but profits are higher in local currency terms.
    2. Bottle costs: Higher gas prices will negatively impact the production cost of bottles. The largest production cost is the bottles. The key is to further raise the percentage of returnable bottles. Last year, the amount of reusable bottles was 20-25% and this year it is 40-45%. Optimal level is 55-60%. Around 87% of beer consumption in Thailand is bottles and 12% is cans. In Vietnam, cans typically account for 60% of consumption.
    3. Beer IPO: It may restart the process. The IPO is to deleverage the company. With interest rates expected to rise, debt levels need to be managed. The target net debt to EBITDA is less than 4.
    4. Raw material costs: The molasses cost is covered for the next six months. Sugar cane is an annual crop harvested in early December. The harvest this year is expected to increase by 20%.
    5. Thailand beer: FY21 picked up 2% points in market share despite the advertising and promotion savings. The bulk of Thai Beverage volumes come from traditional channels and that helped in market share expansion. The modern channel was a weak performer, especially with the closure of convenience stores. There were no margin targets but the benchmark was international peers which have premium beers in their portfolio. Pubs and bars will not be allowed to open until 16 January 2022.
    6. Vietnam: On-premise consumption venues are re-opening. The country is learning to manage the pandemic without adopting more draconian lockdown measures as economic activities need to resume. Lockdowns have occurred in districts and wards, not entire provinces.
    7. Spirits: 90% of the spirits business is from Thailand. Demand has been weaker due to less income support from the government. White spirits prices were increased in October 2021, and the brown spirits prices were increased in April last year. Worker migration from cities to the northeast has also contributed to sales.
    8. Capital expenditure: Capex has trended down to Bt3.3bn from the pre-pandemic Bt4bn to 5bn. With a capacity utilisation of around 60%, no large capex is expected.
    9. Excise tax: Government recently raised the cigarette excise tax. This is usually followed by duties on alcohol. The excise tax increase is unavoidable but Thai Beverage has a track record of managing it well.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-11-28