Thai Beverage PLC – Beer turning fresh

 

 

 

 

 

 

 

 

 

 

 

 

 

The Positive

+ Beer volume recovery. There was a significant turnaround in beer volumes. After four quarters of decline, beer volumes rebounded on market share gains, warmer weather, more marketing events, a higher number of tourists, and overall improvement in macro conditions.

 

The Negative

- Associate earnings collapse. Associate earnings are volatile due to the lumpiness in residential property project earnings and fair value changes. Fraser's property earnings were hurt by a reduction in residential revenue in Singapore and Thailand and higher taxes.

Thai Beverage PLC – No celebrations, yet

 

 

The Positive

+ Margin improvement. There was margin improvement, especially in the beer segment. We believe the improvement came largely at Sabeco through a combination of lower production costs and more disciplined spending on advertising and printing. Spirits margins were stable as the product mix of higher-margin brown spirits rose.

The Negative

- Volumes still falling for beer. Beer volumes were down in the teens for the past four quarters with the sharpest decline in 1Q24. For calendar 2023, volumes were down 12% YoY, only 4% points lower than the 16% drop in pandemic hit 2020. The slowdown in macro conditions in Vietnam has hurt consumption spending and distributor confidence to stock up.

 

Outlook

Recovery in 2024 highly depends on the strength of Thailand's and Vietnam's economies. We believe there is room for optimism in Thailand with planned fiscal stimulus, a cut in excise tax for spirits (from 10% to 0%), and the possible removal of prohibited periods (2 pm-5 pm) to sell alcohol. We do expect a slower recovery in Sabeco. Tet sales in Vietnam appear to be sluggish, with dealers and supermarkets being more cautious in building up inventory. Competition in prices and giveaways remains intense.

 

Maintain BUY with unchanged TP of S$0.67

Our target price is maintained at S$0.67. Valuations are based on a 3-year historical average of 16x PE and listed associates are valued at a 20% discount to current market prices.

Thai Beverage PLC – Waiting for macro to turnaround

 

The Positive

+ Resilient spirits volume. Spirit volume expanded 2.9% YoY to 114mn litres from higher demand of the more expensive brown spirits. The brown spirits share of volume is still below pre-pandemic levels. White spirits volume were softer due to front loading a year ago.

 

The Negative

- Beer still suffering. Both beer revenue and EBITDA declined around 7%. Volumes contracted a larger 11% as a cumulative round of price increases has hurt consumption that is already weak from the soft macro environment, particularly in Vietnam.

Thai Beverage PLC – The beer is still flat

 

The Positive

+ Rebound in spirits volume, revenue and margins. Spirits volume continue to pick up momentum, rising 10% YoY in 3Q23 to an estimated 152.7mn litres. Revenue rose a faster 12% YoY from higher selling price and better product mix of brown spirits.

 

The Negative

- Beer earnings collapsed. EBITDA for beer operations was down 24%, largely from the drag in Sabeco operations. Margins contracted from weaker volumes, high raw material inventory and higher marketing spend in events to promote the brands.

 

Outlook

We expect beer volumes for Sabeco to remain weak for the rest of the year. Any recovery is only expected early next year from economic uplift and lower raw material cost. Spirit volume may soften as festivities post-election wind down and farm incomes have been trending down.

 

 

Thai Beverage PLC – No fizz in the beer

The Positive

+ Better product mix and selling price for spirits. Spirits volume in 2Q23 rose 7.8% YoY to THB31.4bn (S$1.2bn). Revenue growth was from a larger mix of the higher priced brown compared to white spirits. The price increase also supported sales growth. The mix of brown and white spirits have not been disclosed except for double-digit revenue growth for brown and marginal decline in white spirits. There remain ample production capacity in spirits and capital expenditure is minimal. Raw material cost from molasses is expected to rise this year based on the recent Dec22-Apr23 annual harvest.

 

The Negative

- Beer volumes first decline in six quarters. Volume in 2Q23 declined 10.1% YoY, pulling down revenue by 7.3%. Operating margins fell as marketing expenses remain elevated.  Gross margins were stable at 22.4%. Volumes decline was led by Sabeco, with revenues declining by 15% YoY in 1Q23. Vietnam, especially the industrial export sector, is suffering from weak economic conditions, job losses and poor consumer sentiment. Distributors are not willing to carry much inventory due to the weak demand and high interest rates. Thailand volumes were also impacted by higher prices but there has been market share gains.

Thai Beverage PLC – A slow start to FY23

 

 

The Positive

+ Rebound in beer revenue. Beer continued to enjoy revenue growth of 13.7% YoY driven primarily by higher prices. The uptick in volumes was a more modest 4.5% YoY to 684mn litres. Sales growth in Vietnam is expected to weaken near-term due to the weakening economy, especially in manufacturing. Sabeco could pick up some volumes if consumers trade down from mass premium to mainstream brands.  

 

The Negative

- Weak spirit volumes. Revenue declined 6.4% YoY, dragged down by a contraction of volumes by 15.4% YoY. Offsetting the weak volumes were higher prices and a better sales mix of brown spirits (vis-à-vis white spirits). A year ago volumes benefitted from front-loading of volumes ahead of price increases.

 

Outlook

1Q23 faced tough comparables due to the heavy front-loading of volumes a year ago. Even excluding the base effect, volumes declined 8% against 1Q21. We worry higher prices may have negatively impacted volumes. Margins are also weaker from higher marketing spend to boost brand-building after cut-backs during the pandemic.

 

Downgrade from BUY to ACCUMULATE with unchanged TP of S$0.80

Our target price stays at S$0.80, based on 18xFY23e earnings, its 5-year average, plus associate market cap.

Thai Beverage PLC – Bounce in beer and property

 

 

The Positive

+ Surge in beer volume. Beer sales revenue rebounded with a 54% YoY jump in volumes following the lockdown in Vietnam. 4Q21 beer volumes were down almost 40% YoY. There were price increases in October 2022 for beer in Thailand and Vietnam; and longer drinking hours for the World Cup and 80% of on-trade premises re-opened will support sales in 1Q23. Distribution expenses will climb from increased marketing activities due to the return of more events.

 

 

The Negative

- Spirits volumes remain sluggish. Volumes in 4Q22 were flat at 139.9mn litres. Revenue improved from higher selling prices in white spirits. Brown spirit volumes are recovering from the re-opening of entertainment outlets and on-trade sales.  

Thai Beverage PLC – Recovery except for spirits

 

The Positive

+ Volume and price bounce for beer. Beer sales rebounded strongly with a 16% YoY growth. The volume recovery is from lockdowns a year ago, namely in Vietnam. Price increases, product mix and lower sales and marketing costs supported the expansion in EBITDA margins to a record 16.1%. Pre-pandemic EBITDA margins were around 10%.

 

The Negative

- Spirits down after strength a year ago. Volumes were down 14% YoY to 138mn litres. Seasonally, third-quarter volumes are the weakest. The 138mn litres is a tad above 3Q21’s 136mn litres, which included a 1-month alcohol ban in Thailand. We believe the weak volumes stem from poor sales and currency in Myanmar and lower consumption of on-premises brown spirits.  

 

Outlook

We expect the overall recovery from lockdowns and weaker economic conditions to continue. Price increases implemented over the past few quarters together with the rolling over of commodity prices should support a gross margin recovery. Operating margins may suffer if the company resumes marketing activities that were significantly cut over the past two years.

 

Thai Beverage PLC – Beer leading the recovery

 

The Positives

+ Beer bounces back. Beer earnings surged as volumes jumped 11% YoY to 553mn litres. Volumes remain 24% below pre-pandemic levels in 2Q19. Another driver of revenue growth was the low (Thailand) to high (Vietnam) single-digit price increases on beer during the quarter. Sabeco raised prices in December 2021 and April 2022.

 

+ Margins stable despite cost pressure. THBEV continues to keep a lid on operating expenses. 2Q22 administration expenses declined 2.6% YoY to THB3.8bn or 5.8% revenue (2Q21: 6.5%). This is below the pre-pandemic run-rate of around 11%. Despite the raw material cost pressures, gross margins were stable at around 29.7%. The price increase and higher volumes supported margins.  

 

 

The Negative

- Weaker spirits revenue. 2Q22 spirit volumes expanded for the second consecutive quarter, rising 4% YoY to 172mn litres (1Q22: +8.6% YoY). Volume this quarter jumped from forward loading by distributors ahead of a price increase of white spirits in February. Consequently, revenue was flat YoY due to a higher mix of white spirit sales.

 

Outlook

The re-opening of entertainment outlets in Thailand will determine the pace of recovery for THBEV. A complete re-opening will boost beer and brown spirits consumption for the company. Sabeco beer volumes will rebound from the lockdowns a year ago.

We expect spirits earnings to grow modestly in 2H22, supported by price increases in November 2021 and February 2022 of 4-6%. Margins could creep up from lower molasses cost. The sugar cane crop in Thailand is up around 40% from a year ago, helping to lower prices.

Thai Beverage PLC – Spirits rise but for the margins

 

The Positive

+ Jump in spirit volumes. After a disappointing 4Q21, there was an 8.6% YoY jump in spirit volumes in 1Q22 to 206mn litres, or a 48% QoQ improvement. When measured over six months till Dec21, volumes are still down 4.5% YoY. Surprisingly, revenue growth in 1Q22 was much softer than volumes. We believe the weaker Myanmar Kyat pulled down spirits revenue. Volume growth in Thailand may also be driven by some front-loading of orders before the price increase introduced during the quarter.

 

The Negative

- Margins headwinds. Rising margin pressure from raw materials and normalising of advertising and marketing costs will be the key challenge in FY22e. The beer division has managed to contain some of the margin pressure by raising prices by around 9%. Despite the aggressive rise in prices margins contracted.

 

Outlook

We expect a recovery year in FY22e. Revenue is expected to rebound as lockdown measures are removed, entertainment outlets and borders re-open and economic conditions improve in Thailand and Vietnam. An added driver will be price increases from the spirits and beer divisions to mitigate the cost pressures.

 

Maintain ACCUMULATE with unchanged TP of S$0.765

Our target price stays at S$0.765, based on 18x FY22e earnings, its 5-year average.

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