• Thailand’s economy to see gradual improvement
• Alcoholic segments resilient
• Maintain BUY

Growth expected to be firm in Thailand for the year

Bank of Thailand (BOT) kept its policy rate at 1.5% for the second successive month, following two rate cuts in Mar and Apr this year. Thailand’s economy slowdown during the first four months was attributable to lackluster private consumption and export sentiments. BOT believes a gradual improvement to growth will be underpinned by increased disbursement of public investment as well as tourism.

On another note, consumer prices fell for five straight months, as it fell 1.3% YoY for May according to the Ministry of Commerce. But the risk of deflation was deemed to be low as headline inflation is expected to pick up in 2H15 on higher consumption and rising food prices. BOT will keep an accommodative monetary policy stance to allow further rate cuts if necessary. OCBC Treasury Research expects Thailand’s GDP to grow by 3.5% this year, vs. 0.7% in 2014.

Alcoholic segments likely to hold steady

While recent speculation about an imminent coup was since denied, it has been widely opined that long-term political stability in Thailand still remains elusive. Looking back, we had commented that the group’s spirits business have shown to be broadly resilient despite the political uncertainties in Thailand.

Given the broader economy’s growth this year, EIU data stated that average growth for beer and spirits sales will be positive. Thus we continue to believe that the group’s alcoholic segments will help to drive topline and bottomline growth. Expansion through non-alcoholic products is also on-going, with 100Plus and Jubjai as some of the latest offerings. According to EIU, demand for ready-to-drink tea could potentially see rapid growth in Thailand, which has positive implications for NAB’s sales albeit profitability will still take a while to return.

We keep in mind that overall results will typically taper off on a quarterly basis, but we think performance could improve YoY.

Maintain BUY

As there is still sufficient upside at current price levels, we maintain our BUY rating with fair value estimate of S$0.83.

Source: OCBC Research - 15 Jun 2015