• Maintain BUY, with new TP of SGD0.87 from SGD0.91, 53% upside and c.4% FY24F (Sep) yield. We continue to like Thai Beverage for its strong market leadership in Thailand and Vietnam, and as a beneficiary to Thailand’s economic recovery and the return of tourists post COVID-19 in Vietnam. We see earnings growth driven by better sales volume as consumption recovers. Despite lowering our earnings and TP, valuation remains undemanding, at -1.5SD from its historical forward mean P/E. This report marks the transfer of coverage to Alfie Yeo.

• 1HFY23 earnings a tad below. 1HFY23 earnings came in at THB16bn (flat YoY) on the back of THB148bn revenue (+4% YoY). Revenue growth stemmed from beer (THB64bn, +4% YoY, ASP increase), non-alcoholic beverages (THB9bn, +15% YoY, sales volume improvement), and food (THB9bn, +21.8% YoY, resumption of dine-in) segments. The spirits segment was flat YoY (THB65bn) as the sales volume decline was offset by the price adjustment and higher brown spirits sales mix. Gross profit rose by 0.3ppt to 29.3% due to the price increase and better product mix in the spirits segment. Operating margin declined 1.6ppts to 13.3% from higher brand investment and marketing activities, mainly from the beer segment.

• Trim FY23F-25F earnings by 5% each. We tweak our earnings forecasts to account for the slightly weaker-than-expected 1HFY23, since revenue as well as gross and operating profit margins slightly trailed our estimates. We decrease our sales expectations for the spirits segment, while lowering our gross and operating margin assumptions to reflect higher-than-expected raw materials and packaging costs as well as more aggressive brand investment and marketing activities. As such, we cut our FY23F sales by 4%, with gross and operating margins lowered to 29.9% (-0.5ppt) and 13.8% (-0.4ppt). Our SOP-based TP is therefore reduced by 4% to SGD0.87, implying a blended FY23F-24F P/E of 17.3x, slightly below mean.

• Expecting consumption to recover. Despite trimming our estimates, we see growth driven by continued post COVID-19 economic and consumption recovery. Vietnam recently reopened fully for international tourism in March, while our economist believes that Thailand’s domestic consumption and tourism-led demand will accelerate in the second half of 2023. Thailand’s consumer confidence has, since the beginning of the year, surpassed levels post implementation of COVID-19 lockdown and travel restrictions. We believe there is still headroom for Thailand’s consumer confidence to reach pre-COVID-19 levels, and consequently, we are positive on THBEV’s recovery going forward.

• ESG. As THBEV’s ESG score is 3.2 out of 4 – above our country median – we apply a 4% premium to its intrinsic value to derive our TP. Risks to our recommendation include slower-than-expected pick-up in consumption, especially tourism activities, and increased competition.

Source: RHB Research - 22 Jun 2023