• Thai Beverage released its 1QFY22 results, with revenue and EBITDA in line with our expectations. This was driven by a stronger-than-expected recovery in the beer and food segments. The spirits segment posted strong revenue growth but was dragged down by rising material costs.
• We opine that Thai Beverage is an attractive and undervalued COVID-19 recovery play with high potential upside. Maintain BUY.

Thai Beverage's 1QFY22 Results in Line With Expectations

• Thai Beverage (SGX:Y92) provided its 1QFY22 business update, with 1QFY22 revenue and EBITDA growing 7.4% y-o-y and 1.6% y-o-y respectively, forming 31.1% and 34.3% of our FY22 full-year forecasts.
• Thai Beverage’s 1Q is historically the seasonally strongest quarter. The robust y-o-y growth in revenue was largely driven by all segments as key markets recovered from an improving COVID-19 situation and sales volumes improve. 1QFY22 EBITDA was slightly above expectations but was still dragged down by a y-o-y drop from the spirits segment.
• Thai Beverage’s balance sheet continues to improve with net debt dropping 19.8Btb to 161.2Btb.

Performance by Segments

• Spirits: Dragged down by rising costs. Spirits volume grew strongly (+8.6% y-o-y, +47.5% q-o-q), backed by its off-premise consumption line with expectations as both formed 28% of our full-year expectations. The larger surge in EBITDA was due to Thai Beverage’s effective cost control measures.

Vietnam to Welcome Tourists

• From 15 Feb 22, Vietnam will remove its quick test requirements and lift all restrictions on international flights, restoring flight frequency to pre-pandemic levels. Fully vaccinated tourists only need to self-quarantine for three days, taking two PCR tests on the third and seventh day, while business travellers staying for 14 days or lesser do not need to quarantine.
• With higher expected tourist arrivals, we expect Thai Beverage’s Vietnam beer consumption levels to improve. Vietnam contributes around 45% and 70% of Thai Beverage’s beer segment revenue and net profit respectively. An expected full international reopening sometime in 2HFY22 would help boost consumption levels and overall earnings moving forward.

Earnings Revision & Recommendation

• We raise Thai Beverage's FY22-24 earnings forecast by 2.8%, 3.9% and roughly US$5b (13X FY22 EBITDA), dwarfed by similar competitors such as Tsingtao Brewery Company (US$16b), Budweiser Brewing Company APAC (US$35b) and Asahi Group Holdings (US$21b).

• Catalysts:
  • M&As.
  • Potential spin-off listing of its beer business.
  • Full reopening of bars in Vietnam and Thailand.

Source: UOB Kay Hian Research - 15 Feb 2022