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.

Thai Beverage PLC – Lockdown hangover continues

 

The Positive

+ Healthy cash flows and higher dividend. Despite the tough operating conditions, ThaiBev 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% YoY to 139.3mn litres. It was a surprise as volumes in the prior quarter were a strong 161.6mn 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.

 

Outlook

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. ThaiBev 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.

Thai Beverage PLC – Still in good spirits

The Positive

+ Resilient spirits. Volumes rebounded  18.5% YoY to 161mn litres. The comparable period last year was weaker due to a 1-month alcohol ban in Thailand. QoQ, volumes declined 2.2%. Volume resilience can be explained by typical off-premise consumption for spirits, workers returning to villages from cities and white spirits’ better affordability than other alcohols. Margins expanded from lower selling expenses.

 

The Negative

- Sluggish food sales. While food earnings rebounded sharply from a year ago, food’s THB163mn EBITDA was substantially below its pre-pandemic quarterly run rate of THB470mn. Dine-in restrictions curbed revenue growth and kept the division in net losses.

 

Outlook

The ongoing closure of entertainment venues and restaurants in Thailand will continue to affect beer and food outlets, in our view. Beer is mainly consumed on-premises, unlike spirits. The upside surprise is ThaiBev’s ability to control costs aggressively to adapt to the current environment.

 

Maintain BUY with unchanged TP of S$0.86

Our target price stays at S$0.86, based on 18x FY21e earnings, its 5-year average.

Thai Beverage PLC – Recovery underway

 

 

The Positives

+ Stable spirit sales in Thailand. Spirit sales volume was down 2.9% YoY in 2Q21, dragged down by a mid-teens decline in Myanmar*. Volume in Thailand was flat, aided by farmers returning home from the cities and the company’s distribution strength upcountry. Myanmar faced huge disruptions from logistics, material shortages and a banking system that was shut. Transactions had to be conducted entirely in cash, even employee wages.

 

*Spirit sales in Myanmar are from its 75% stake in Grand Royal Group, the largest whisky player in the country, acquired in October 2017. In FY20, Grand Royal contributed Bt1.25bn to group PATMI or 5%.

 

+ Aggressive cost-control. SG&A was down 9.5%, a huge Bt1bn decline. Spirits and non-alcoholic beverages led the cost cuts, down 10% and 16% YoY respectively or a combined Bt640mn. Spending on events and brand-building was curtailed. 

 

+ Interim dividend up 50%, back to pre-pandemic levels. Interim DPS was up 50% YoY to Bt0.15. This is back to the pre-pandemic Bt0.15 it paid in FY18 and FY19.

 

The Negative

- Lockdown’s impact on domestic sales. A resurgence of cases and lockdowns in Thailand such as the closure of entertainment outlets and prohibition of alcohol in restaurants hurt beer and food revenue. In contrast, spirits are consumed predominantly off premises. Beer volumes in Thailand declined 9.5% YoY in 2Q21. Meanwhile, food revenue slumped 21% YoY and net losses widened.

 

Thai Beverage PLC-Hail spirits and cost savings

The Positives

+ Resilient spirits divisions. Volume growth in spirits was stable, improving 0.3% YoY despite the pandemic in Thailand. Spirits are consumed off-trade or in homes and less affected by closures of entertainment or retail channel. In comparison beer volumes in Thailand fell 6.5% YoY.

+ Aggressive cost cuts especially in beer division. The major driver to earnings growth has been aggressive cost cuts. Total administration and distribution cost for the group contracted 10.6% or THB1.6bn. Bulk of the operating cost cuts came from beer division, where slashed a massive THB1.3bn of cost (or down 26.5% YoY.

 

The Negatives

- Sabeco still suffering. Another weak quarter with volumes down 11.6% YoY. A combination of Decree 100, a typhoon in October and late Tet (10 days later from a year ago).

- Plunge in Frasers Property earnings. 1Q21 PATMI contribution from associates, Frasers Property and F&N, was down 58% YoY to THB433mn. There was limited disclosure but lower property development income and weakness in hospitality and retail operations.

 

Outlook

The re-occurrence of COVID-19 in Thailand in December renewed restrictions and lockdowns on gatherings and entertainment activities. On-trade channels were more affected as reflected by soft beer consumption. We expect a gradual recovery in alcohol consumption especially from pandemic and alcohol ban affected FY20. For Sabeco, volumes should improve as the impact from Decree 100 wanes off.

With regards to Beerco listing, FY9/20 PATMI was S$198mn. If we assume 30x PE, similar to global peers, the market cap will be S$5.9bn. Assuming 20% stake is sold, interest savings (after tax) is around S$33mn (THB750mn). This is around 3% of our FY21e PATMI. But the 20% dilution will shave around THB250mn off PATMI.

Another development is the 37 to 100 rights shares for issue by Frasers Property at $1.18 per shares. ThaiBev owns 824.847mn shares (or 28.12%) of Frasers Property. The company has given an irrevocable undertaking to subscribe for their allotted 305.193mn shares. Therefore, ThaiBev will fork out $360mn for the rights.

 

 

 

 

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