• Maintain BUY, new SGD0.76 TP from SGD0.82, 51% upside with c.4% FY24F (Sep) yield. We remain positive on Thai Beverage due to its strong market leadership in Thailand and Vietnam, and being a beneficiary of the economic recovery in both countries. Even though 1Q24 earnings missed estimates, we anticipate consumption recovery in Thailand and Vietnam to come through, delivering earnings growth in the latter part of the year. Its valuation is attractive – the stock is trading at c.11x FY24F P/E, at around -2SD from the historical forward mean of c.19x.

• 1Q24 earnings below estimates. 1Q24 revenue came in at THB76bn (-5.9% YoY) while EBITDA registered THB14bn (+1.9% YoY), below expectations. Revenue was dragged by the beer business (-14% YoY, THB33bn) due to slower-than-expected economic recovery in Vietnam and Thailand. Apart from that, spirits revenue rose 0.5% YoY to THB34bn on better selling prices, while NAB and Food increased 1.6% and 5.9% YoY to THB5bn each on better sales volume and brand visibility, new stores, and promotions. THBEV’s overall EBITDA margin, however, increased to 18.1% (-1.4ppt vs 16.7% in 1Q23), helped by the beer (+1.8ppt to 12%) and non-alcoholic beverages (NAB) (+0.7ppts to 10%) businesses, albeit mitigated by better margins in the spirits (+0.2ppts to 27%, higher selling prices) segment. EBITDA margin for the food unit was flat at c.11%. EBITDA margins outperformed, largely due to lower raw material and packaging costs in the beer business, and prudent cost management.

• We cut FY24-26F earnings by 2-5%. We factor in the lower-than-expected 1Q24 revenue and earnings, which brings down our FY24-26F net profit forecasts by 2-5%. Both FY24-26F revenue and EBITDA are lowered 2-6%, accounting for weak sales in the beer business offset by better margins due to favourable raw material costs and cost management. We still expect earnings to grow by a more conservative 3-5% YoY going forward. Our SOP- based TP is correspondingly lowered to SGD0.76, from SGD0.82.

• Our recovery thesis remains intact. We continue to see better consumption and economic recovery driving volume growth in the latter part of the year. Thailand’s consumer confidence index continued to improve to YTD high of 62.9pts in Dec 2023, hence we remain positive on the consumption recovery in Thailand. Based on RHB economists’ estimates, GDP growth for Thailand and Vietnam is expected to accelerate from 2.5% and 4.7% YoY this year, to 4% and 6.4% YoY in 2024.

• Downside risks to our earnings and recommendation include a slower-than- expected pick-up in consumption and increased competition. As THBEV’s ESG score is 3.2 out of 4 – above our country median – we apply a 2% premium to our SOP TP to arrive at our TP.

Source: RHB Research - 16 Feb 2024