Thai Beverage - UOB Kay Hian 2022-02-04: Better Days Ahead In FY22 As International Tourism Returns & Restrictions Ease

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - Better Days Ahead In FY22 As International Tourism Returns & Restrictions Ease

Attractively priced with a stable core business in spirits, we view Thai Beverage (SGX:Y92) as an undervalued and overlooked COVID-19 recovery play. Higher consumption volumes driven by international tourism and the easing of social-distancing measures are expected to boost earnings moving forward.
Maintain BUY.

With COVID-19 cases falling, Thailand has reopened its international borders to fully-vaccinated travellers starting 1 Feb 22, after suspending its initial quarantine-free visa programme in Dec 21 for seven weeks due to an ongoing Omicron variant outbreak. Starting 1 Feb 22, fully-vaccinated international travellers are now able to enter Thailand quarantine-free upon a negative pre-departure/on-arrival PCR swab test and another PCR test on the fifth day of travel.
Also, the “Sandbox” programme has now been extended to include the popular beach destinations of Pattaya and Koh Chang.

As of 24 Jan 22, restaurants in Thailand’s blue zones are allowed to serve alcohol till 11pm, extended from 9pm previously. Blue zones include popular tourist destinations such as Bangkok and Phuket. Although bars, nightclubs and other entertainment venues are not legally allowed to open, Thailand’s authorities have allowed these entertainment venues to temporarily reopen as restaurants, allowing the sale of alcohol but only after meeting strict COVID-19 guidelines.

Tourism data released from Thailand’s Ministry of Tourism and sports showed a sharp surge in tourist arrivals due to the quarantine-free programme. Total number of international arrivals in Dec 21 came in at 230,497, a sharp increase from 91,255 in Nov 21 and 20,272 in Oct 21.
Jan 22 international arrivals are expected to soften slightly due to the brief suspension of the quarantine-free programme. However, according to the Thai Hotel Association, 200,000-300,000 international travellers are forecasted to arrive in Thailand in Feb 22 with better numbers expected in Mar 22.

For FY22, we expect Thai Beverage’s revenue and EBITDA from the spirits segment to grow white spirits ASP hikes, barring any large increase in material costs.

Entertainment venues in certain provinces across Thailand are now allowed to expect revenue and EBITDA to post minute 0-1% y-o-y growth. Potential upside would come from better-than-expected volumes from international arrivals.

We opine that Thai Beverage’s ongoing digital efforts and prudent cost management strategy for its non-alcohol beverages (NAB) segment would continue to pay off with restaurants also starting to reopen. For the food segment, the easing of COVID-19 restrictions and the reopening of restaurants would help boost customer footfall. We expect FY22 EBITDA for NAB and food segments to grow by 4.2% y-o-y and 14.2% y-o-y respectively.

We lower our FY22-24 net profit forecasts for Thai Beverage slightly by standard deviation to its mean P/E, backed by an expected earnings recovery underpinned by favourable tailwinds. Thai Beverage’s potential 3Q/4QFY22 IPO of its beer business may also unlock value for the group.
Conservatively, we value the beer business at roughly US$5b (13X FY22 EBITDA), dwarfed by similar competitors such as Tsingtao Brewery Company (US$16b), Budweiser Brewing Company APAC (US$35b) and Asahi Group Holdings (US$21b).
See
Catalysts: Potential spinoff listing, full reopening of bars in Vietnam and Thailand.

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-02-04

SGX Stock Analyst Report BUY MAINTAIN BUY 0.85 DOWN 0.920