• 1Q14 PATMI above expectation
• Intense competition in nonalcoholic beverage
• Maintain BUY

GP margin surprise in 1Q14 results

Despite Thailand’s political unrest scaling up in 1Q14, Thai Beverage PLC (ThaiBev) has shown earnings resilience. ThaiBev’s 1Q14 revenue increased 4.8% YoY to THB41.0b, in-line with expectation as it forms 25.1% of our FY14 forecast. Due to better-thanexpected gross profit (GP) margin, PATMI increased 72.9% to THB6.0b, making up 30.2% of our expectation. The better GP margin came from beer and spirits segments. In 1Q14, beer’s GP margin was 18.9% (vs. 13.1% in 1Q13) while spirits’ GP margin was 33.5% (vs. 32.0% in 1Q13). The higher GP margins are due to raising average selling price (ASP) more than the increase in excise tax in 4Q13. On a QoQ basis, the GP margins for beer (vs. 15.3% in 4Q13) and spirits (vs. 32.6% in 4Q13) segments were also better as pre-excise tax increase inventory were sold without the higher ASP in Oct-13.

Alcoholic segments retain market shares

In 1Q14, spirits sold was flat YoY at 141m litres. However, there was a shift in product mix from brown to white spirits, which is more profitable due to a lesser need for advertisements and promotions. Beer volume, on the other hand, dropped by 11.7% YoY to 144m litres. Nevertheless, ThaiBev’s beer market share is still ~30% as the overall beer market had shrunk by the same degree after excise tax increase last year.

Non-alcoholic beverage facing competition

In 1Q14, non-alcoholic beverage sales decreased by 22.1% YoY to THB3.7b, mainly due to competition that caused sales volume drop. Sermsuk product sales decreased 7.7% to 215.3m while sales volume of Oishi beverages dropped 16.0% to 57.8m litres. Going forward, ThaiBev will be working together with its subsidiaries (i.e. Oishi and Sermsuk) to extend one another’s distribution.

Revise GP margin upwards; new TP S$0.74

We revise the GP margins for beer and spirits segments upwards to take into account the higher ASP. We maintain BUY with a slightly higher TP of S$0.74 (previous S$0.73)

Source: OCBC Research - 15 May 2014