• Thai Beverage (SGX:Y92)'s 1HFY22F (Oct 2021 to Mar 2022) results beat expectations due to faster-than-expected recovery pace.
• Going forward, we expect the encouraging momentum to continue in view of the better containment of the pandemic and broader reopening of regional economies.
• We continue to like Thai Beverage as a proxy to capture the consumption recovery thanks to its strong brand equity and effective marketing initiatives. BeerCo’s successful listing should unlock value and catalyse Thai Beverage's share price, in our view.
• Maintain BUY and S$0.97 target price, 43% upside and ~4% yield.

Thai Beverage's 1HFY22 Results Were Above Expectations

• Net profit of THB16.3bn (+13%) accounted for 58-59% of our and consensus forecasts as demand recovery was stronger than expected.
• Post-results, we raise Thai Beverage's FY22F-24F earnings forecast by 5-6%. Notwithstanding the earnings upgrade, our SOP-derived target price remains at S$0.97 after we refresh our DCF risk assumptions. Our target price for Thai Beverage is inclusive of a 4% premium on its ESG score of 3.2.

Results Review

• Y-o-y, 1HFY22 sales rose 9% to THB143bn with all operating divisions recording encouraging improvement thanks to the broader reopening of regional economies on the back of better containment of the pandemic. Amongst them, beer business chipped in the most with 1HFY22 revenue jumping 15% on a 5.5% increase in volume and hike in selling prices.
• Unsurprisingly, the food division recorded a sharp sales recovery of 31% as the restaurant business benefited from the return of dine-in crowds. That said, 1HFY22 operating profit only grew 7% to THB21.3bn as higher raw material and distribution costs partially offset the impact of the robust topline growth.
• Worth highlighting, its spirit business was dragged by an unfavourable product mix, which led to a 3% decline in EBITDA, whereas the beer division was able to deliver a 19% leap in EBITDA with margin expanding by 0.4ppts thanks to the volume recovery and ASP hike.

Sustainable Recovery Outlook

• Looking forward, we foresee the positive recovery momentum to sustain into 2HFY22F. This is taking into account further normalisation of economic activities whilst the gradual pick-up in tourist arrivals should also lift consumption and benefit all of Thai Beverage’s business divisions.
• Meanwhile, we expect the price increase and continuous efficiency gain to mitigate some of the impact of higher raw material costs.
• On the other hand, distribution costs should remain elevated as the company may look to intensify its brand building marketing initiatives to spur spending and strengthen market share now that most of the restrictions have been lifted.

• Risks to our recommendation include a major resurgence in COVID-19 infection rates and a delay in BeerCo’s listing plan.

Source: RHB Invest Research - 17 May 2022