• Results were within expectations. 1Q24 revenue and EBITDA were at 26%/27% of our FY24e forecasts. 1Q24 EBITDA rose 1.9% YoY to Bt13.8bn.
• 1Q24 beer revenue suffered a 14% YoY decline in revenue, consistent with the 15% drop in volumes. Spirits operations were stable with revenue largely flat YoY. Margins for both businesses rebounded on lower production costs and marketing spend.
• We maintain our FY24e forecasts. Our BUY recommendation and target price of S$0.75 is unchanged. We peg our target price to 16x FY24e core earnings, the 3-year historical average. Listed associates are valued at market valuations. We remain positive on the recovery of volumes this year as economic conditions improve via government stimulus and a rebound in exports.

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.

• Results were marginally below expectations. 2023 revenue and PATMI were at 97%/95% of our FY23e forecasts. Beer revenue and associate earnings were below our estimates.
• Spirits EBITDA grew 3% YoY in 4Q23 to THB5.9bn due to growth in volumes. Beer EBITDA fell 7% to THB3.6bn, as beer volumes declined by 11%, the third consecutive quarter of contraction.
• We lower our FY24e PATMI by 9%. Beer is facing soft consumer demand in Vietnam due to the weak economic conditions, and made worse by five cumulative rounds of price increases since 2021. In Thailand, the emergence of Carabao as a new beer competitor further raised the pricing and marketing intensity. We expect growth in spirits revenue from normalisation of white spirits volume, price increases and higher mix of brown spirits. More aggressive fiscal spending in Thailand next year will support consumption spending. Our BUY recommendation is maintained but target price is lowered from S$0.75 to S$0.67. We roll-over valuation to FY24e earning but PE ratio is lowered to the 3-year average of 16x (prev. 18x). The listed associates are valued at 20% discount to current market price.

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.

• Results were below expectations. 9M23 revenue and PATMI at 71%/65% of our FY23e forecasts. Weakness in beer sales was steeper than expected.
• Spirits revenue climbed 12% YoY to THB28.5bn in 3Q23, largely on 10% volume jump and improvement in selling price from better mix of brown spirits and price adjustment. 3Q23 spirits volume was a record 152.7mn litres.
• We lower our FY23e revenue by 10% and PATMI 7%. Beer contribution to group PATMI around 8% due to the large minority interest. The weakness in beer volumes was steeper than expected. Sabeco is facing major volume contraction due to weak macro conditions in Vietnam affecting discretionary spending such as alcohol. Our BUY recommendation is maintained but target price is lowered from S$0.80 to S$0.75. We peg 18x FY23e earnings for the core operations, its historical average. And listed associates are valued at market valuations.

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.

• Earnings were within expectations. 1H23 revenue and PATMI at 49%/52% of our FY23e forecasts. 2Q23 PATMI growth of 3.4% was driven by growth in spirits but dragged down by a major decline in beer earnings.
• 2Q23 beer volumes were down 10% YoY. Sabeco volume declined by double-digits due to distributors de-stocking and slowdown in economic growth. Consumer sentiment in Vietnam is weak, especially for the industrial sector.
• We maintain our FY23e forecast. We expect improvement in beer sales to gradually recover in Vietnam as tourist arrivals support consumption and economic activity. The activities around the general election in Thailand is another trigger for beer demand in the near-term. Our recommendation is upgraded from ACCUMULATE to BUY due to recent share price weakness. The target price of S$0.80 is unchanged. We peg 18x FY23e earnings for the core operations, its 5-year average. And listed associates are valued at market valuations.

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.

• 1Q23 revenue/EBITDA was below expectations at 27%/and 25% of our FY23e forecasts, respectively. 1Q is a seasonally stronger quarter.
• 1Q23 spirits volume contracted 15% YoY to 175mn litres after record volumes a year eariler, which enjoyed trade-inventory loading ahead of price increases.
• Our FY23e earnings are maintained. We expect earnings to recover with the re-opening of borders in Thailand, event-driven spending from the election and improvement in economic conditions. Our BUY recommendation is downgraded to ACCUMULATE following the recent share price performance. The target price of S$0.80 is unchanged at 18x FY23e core earnings, its 5-year average.

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.

• Earnings were above expectations due to higher associate earnings. FY22 revenue and PATMI at 101%/109% of our FY22e forecasts. Associate earnings almost doubled from a gain on disposal and reversal of write-down on properties held for sale.
• Beer volumes recovered strongly post-lockdown in Vietnam. Total volumes jumped 54% YoY with EBITDA doubling. Final dividend up 20% YoY to Bt0.60 (S$0.023).
• We maintain our BUY recommendation with an unchanged target price of S$0.80. Our target is pegged at 18x FY23e earnings for the core operations, its 5-year average. And listed associates valued at market valuations. We expect FY23e to be a year of growth as the re-opening of borders and entertainment outlets resume; increased selling prices; and demand further spurred by multiple events including the World Cup and upcoming elections. Gross margins are expected to improve as commodity prices taper down but higher marketing spend will dampen the margin improvements.

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.  

• Results are in line, with 9M22 revenue and EBITDA at 77%/76% of our FY22e forecasts.
• Spirits volumes contracted 14% YoY and margins were weaker. Beer recovered on both volume and price increases.
• We upgrade to a BUY with an unchanged target price of S$0.80 due to recent share price weakness. Our target is pegged at 18x FY22e earnings, its 5-year average. No change to our FY22e forecast. The re-opening of entertainment venues in Thailand on 1 Jun22 and softer commodity prices should support earnings in 4Q22. Separately, the company announced the deferment of the BeerCo spin-off due to challenging market conditions.

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.

• 1H22 revenue and PATMI beat our expectations, at 55%/62% of our FY22e forecasts. 2Q22 PATMI rose 20% YoY to THB7.1bn. Interim dividend was unchanged at THB0.15.
• Driving earnings growth was a 3-fold recovery in beer and associates PATMI. Spirits earnings were down 3% YoY to THB5.4bn due to a higher mix of white spirits. Spirits accounted for 75% of group PATMI.
• We maintain our ACCUMULATE recommendation. Our FY22e earnings is raised 5% to THB27.6bn. The target price is raised from S$0.765 to S$0.80. Valuation is based on 18x earnings, its 5-year average. FY22e will be a recovery from pandemic lockdowns last year. The pace of the recovery will depend on entertainment outlets reopening in Thailand.

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.

• 1Q22 revenue and EBITDA met expectations at 30% and 31% of our FY22e forecasts respectively. 1Q is a seasonally stronger quarter.
• Spirit volumes continue to grow to record levels but margins were hurt by rising molasses cost and a weak Myanmar Kyat. Beer volumes are still 10% below pre-pandemic levels.
• Our FY22e earnings are unchanged. Earnings growth in FY22e will be supported by price increases for spirits, easing of lockdowns and general improvement in economic conditions in Thailand and Vietnam. Maintain ACCUMULATE with an unchanged target price of S$0.765, 18x FY22e earnings, its 5-year average.

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.

• Results were below results expectations. FY21 revenue and PATMI were 90%/91% of our FY21e forecasts. 4Q21 EBITDA was down 34% YoY to Bt7.6bn.
• Spirit volumes declined 19% YoY in 4Q21. Weakness was due to promo sales a year ago and dampening consumer sentiment in Thailand.
• We lower FY22e EPS by 10% to 4.25 cents 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 from BUY to ACCUMULATE with a lower target price of S$0.765 (prev. S$0.86). Target price is based on 18x FY22e earnings, its 5-year average. The recovery post-lockdown is underway, but the pace may be slower than expected. Reopening of nightlife entertainment venues in Thailand will occur only in mid-January 2022. Consumer sentiment and income levels remain fragile after months of lockdown. ThaiBev has lifted the selling price of spirits to offset the higher material costs. Plans for beerco IPO are intact.

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.