THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)
Thai Beverage - Expect More Relaxation To Boost Tourism & BeerCo IPO To Unlock Value
- Thailand has announced multi-stage plans to revive its tourism sector. The kingdom has relaxed testing guidelines for international arrivals while easing domestic alcohol restrictions. We think that Thai Beverage (SGX:Y92) is 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, while the expected IPO of BeerCo provides major upside.
Make tourism great again.
- Thailand scrapped the need to show a negative pre-departure PCR test starting 1 Apr 22. Instead, only a negative on-arrival PCR test and a negative ART result on the 5th day of travel are required. The minimum insurance coverage required was also reduced from US$50,000 to US$20,000.
- In Vietnam, the country has fully reopened its international borders since 15 Mar 22, whereby only one negative PCR (72 hours pre-departure) or ART test (24 hours pre-departure/upon arrival) is required before entering the country quarantine-free.
Transition to endemic living.
- As part of a four-phase plan to transition to endemic living on 1 Jul 22, Thailand’s authorities have proposed several guideline changes to further boost the tourism sector. Pending approval from Thailand’s Centre of COVID-19 administration (CCSA), the costly on-arrival PCR tests would be replaced by the quicker and cheaper ART tests on 1 May 22.
- Also, Thailand authorities are planning to revoke the Thailand Pass requirement or cancel the Test and Go Scheme for all international arrivals from 1 Jun 22 onwards, which would help to simplify the travel application process for international tourists.
Expect more domestic alcohol rules to be relaxed nationwide.
- Starting 1 Apr 22, Thailand’s CCSA eased alcohol restrictions in 24 orange provinces to the less stringent yellow or blue zones, implying that alcohol can now be served at eateries to 11pm in these provinces. Chiang Mai and Phetchaburi have also been added to the blue sandbox tourism areas.
- Bangkok has also eased restrictions for MICE events whereby alcoholic drinks can now be served. Entertainment venues such as bars and clubs remain closed but are able to convert temporarily into restaurants to serve alcohol under strict guidelines.
- CCSA has announced plans to debate allowing Thailand’s nightlife industry to reopen fully and legally which would lead to a revival in the country’s bustling nightlife and alcohol consumption volumes.
Temporary dip in tourism.
- Due the emergence of the Omicron variant and the subsequent suspension of the Test & Go scheme in Dec 21, international arrivals dropped from 230,497 to 133,903 in Jan 22. However, with the resumption of the scheme along with further relaxation of testing guidelines, Feb 22 international arrivals recovered slightly to 152,954.
- According to Thailand’s tourism industry, it is estimated that roughly 5m international tourists will arrive in 2022, a fraction of 40m pre-pandemic.
Vital Russian tourism to soften.
- Thailand has historically been one consumption volumes as international arrivals start to recover, backed by the easing of domestic alcohol restrictions.
Slower start to the New Year.
- According to data from Thailand’s Office of Industrial Economics, Thailand’s domestic sales volume of white spirits was down -8.5% y-o-y for Jan 22 but recovered +15.6% y-o-y in Feb 22. Similarly, mixed spirits fell for both Jan 22 (-13.0% y-o-y) and Feb 22 (-1.3% y-o-y). Data for beer has not been released but we expect similar consumption trends to mixed spirits given the on-trade consumption nature of beer.
- We reckon the slowdown was caused by the emergence of Omicron in Dec 21-Jan 22, leading to partial lockdowns, suspension of the Test & Go Scheme and softening consumption volumes. However, as Thailand transitions to endemic living with the relaxation of travel guidelines and distancing measures from Feb 22 onwards, we expect consumption levels to recover with the return of international arrivals and domestic sales.
Maintain BUY on Thai Beverage
- No changes to our beer business at roughly US$5b (13X FY22 EBITDA), dwarfed by similar competitors such as Tsingtao Brewery Company (US$14b), Budweiser Brewing Company APAC (US$35b) and Asahi Group Holdings (US$18b).
- See
- Catalysts: Potential spinoff listing, full reopening of bars in Vietnam and Thailand.
Llelleythan Tan
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-04-01
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