• Positive macro fundamentals for Thailand
• Vietnam a key market for growth
• Reiterate buy

Steady economy outlook

OCBC Treasury Research and Strategy believes that Thailand’s economic growth for 2017 is likely to be slightly better at 3.3-3.5%, on the back of the country’s strong fundamentals in its tourism industry, domestic consumption and investment trends. Against a steady broader macro outlook, and with advertising efforts likely to resume this year, operating conditions should gradually recover for Thai Beverage, in our view.

Looking overseas amid strong competition

Since Chang beer’s rebranding initiative in Aug 2015, we believe Chang has emerged stronger and its market share has enjoyed good gains to ~40%. Inevitably this invites keen competition and new products by its peers. Nonetheless, the success of peers’ moves would have to lie on the effectiveness of marketing campaigns and impact on consumer behavior, which can take time especially if the products are very similar.

Amid strong competition, and in a bid to achieve sustainable growth for the long run, the group has emphasized on its Vision 2020, which aims to diversify its revenue sources by products and presence. As mirrored by other players, management views ASEAN countries like Vietnam and Myanmar as high-growth markets.

In latest media reports, Sabeco may submit its plan to sell the state’s stake at the end of 1Q17. F&N had also recently completed the purchase of a 5.4% stake in Vinamilk for S$709m, increasing its interest to 16.35%.

Maintain BUY

Post FY16 results in late Nov last year, we deemed Thai Beverage’s share price level as attractive and we had upgraded the stock to a buy rating with an unchanged fair value estimate. Despite the near term weakness expected due to the mourning period, we see the Spirits segment staying largely resilient and Beer segment driving steady growth ahead.

We are also encouraged by the group’s longer term efforts and diversification plans, which can potentially be accelerated by a corporate restructuring, still slated to happen this year. Our thesis on Thai Bev remains intact, and we reiterate our BUY rating on the stock with a fair value estimate of S$1.01.

Source: OCBC Research - 10 Jan 2017