• 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.