• Maintain BUY, new SGD0.71 TP from SGD0.76, 40% 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. We expect consumption to recover in the two nations, delivering earnings growth in the latter part of the year. Its valuation is attractive – the stock is trading at c.12x FY25F P/E, at around -1.5D from the historical forward mean of c.19x.

• 2Q24 net profit in line with expectations. 2Q24 revenue came in at THB72bn (+6.3% YoY) while EBITDA and net profit registered THB13bn (+7.9% YoY) and THB15bn (-6% YoY) – within expectations. Revenue growth was led largely by the beer and non-alcoholic business segments, which grew +13% and +9% YoY to THB30bn and THB5.3bn on sales volume increases. In addition, the beer business also benefitted from price adjustments made in 2023. The spirits revenue was flat at THB32bn (+0.6% YoY), where volume sales declined 1.1% YoY, offset by price increases – especially in the small bottle brown spirits product range. Food revenue grew 4.5% YoY to THB5bn, led by new stores, and better brand visibility and accessibility. Overall, EBITDA margin increased to 18.3% (+0.3ppts vs 18% in 2Q23), lifted by the spirits and non-alcoholic businesses, which collectively saw lower raw material prices, better productivity and cost efficiencies, as well as lower selling and marketing costs. An unchanged interim DPS of 1.50 THB cents was declared, in line with expectations.

• Earnings forecasts maintained. We have left our earnings unchanged, as 2Q24’s results were largely in line with our forecasts. Our SOP TP is, nonetheless, reduced from SGD0.76 to SGD0.71 after factoring in higher WACC from a steeper cost of debt on its balance sheet and less favourable exchange rates between SGD and THB. Going forward, we still expect revenue to grow by a CAGR of 3% on the back of improving demand and higher volume consumption in both Vietnam and Thailand. The beer business in Thailand is already seeing firm volume sales and demand in the current quarter – this is as tourist arrivals and events pick up. Vietnam’s beer sales in 1Q24 were also buoyed by price increases and volume growth. Continued momentum in consumption should support sales growth going forward. Our forecast factors slight margin expansion as input costs remain favourably hedged going forward. Besides, we expect marketing spend to remain efficient, supporting operating margins. Earnings are hence expected to grow by 3-5% YoY going forward. RHB estimates Thailand and Vietnam’s GDP to accelerate from 1.9% and 5.1% YoY last year to 3.5% and 6.4% YoY this year.

• 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 May 2024