• Maintain BUY and SGD0.71 TP, 49% upside with c.5% FY25F (Sep) yield. We remain positive on Thai Beverage due to its strong market leadership in Thailand and Vietnam, and it being a beneficiary of the economic recovery in both countries. We expect consumption to recover in the two nations, delivering the group’s earnings growth into FY25F. This counter is trading at an attractive c.11x FY25F P/E, at around -2SD from the historical forward mean of c.19x.

• 3Q24 net profit in line. 3Q24 revenue came in at THB69bn (+2.4% YoY) while EBITDA amounted to THB12bn (-3.2% YoY) – which are within expectations. Revenue growth was led largely by the beer, food and non- alcoholic business segments, which grew +8%, +4% and +3% YoY to THB31bn, THB5.2bn and THB5.6bn on sales volume increases. Its non- alcoholic unit’s revenue grew 3.3% YoY to THB6bn on higher sales volume, led by brand building and warmer weather. The spirits segment’s revenue declined to THB27bn (-4.3% YoY), where volume sales dropped 2.7% YoY on a 9-month basis. Food revenue grew 4.4% YoY to THB5bn, led by new stores being opening, and better brand visibility and accessibility. Overall, EBITDA margin shrank to 16.9% (-1.0ppts vs 17.8% in 3Q23), albeit lifted by the beer business as a result of the division’s more effective brand investment and marketing activities. We maintain our TP and forecasts, as THBEV’s 3Q24 results are largely in line.

• Largely neutral impact on recent share swap exercise. THBEV recently announced an all-shares share swap agreement with TCC Assets to sell its 28.78% stake in Frasers Property (FPL) for the remaining 58.9% stake in Fraser and Neave (F&N). This would result in THBEV owning 100% of F&N and 0% of FPL. This would also see it transforming into a pure-play F&B stock with no exposure to the property sectors. THBEV already has a stake in F&N, and increasing this stake facilitates a higher recognition of the latter’s financials proportionately. Further synergies could be realised in the future when both non-alcoholic beverage divisions merge into a more streamlined leadership within THBEV. The transaction is also slightly EPS-accretive (based on pro forma LTM Mar 2024 financials), and has better interest- bearing debt to EBITDA (based on pro forma 31 Mar 2024 financials). We think the share swap ratio of 1.88 FPL share per F&N share looks fair. The overall impact for FPL’s loss of earnings contribution vs the increased contribution of F&N looks pretty neutral, albeit with a slight earnings accretion (based on pro forma LTM Mar 2024 financials).

• 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-based TP to arrive at our TP.

Source: RHB Research - 16 Aug 2024