Thai Beverage PLC (ThaiBev) core 1QFY18 results came in below our expectations as domestic alcohol beverage was affected by destocking of sales agents’ inventory. 1QFY18 revenue decreased 2.6% YoY to THB45.6b mainly attributable to Beer (-4.0%) and Spirits (- 5.8%) businesses.

By segment: 1) Spirits’ net profit declined 21.2% YoY to THB4.0b with increase in advertising and promotion expenses as well as higher staff costs, 2) Beer plunged 29.7% to THB886m on lower sales volume, higher advertising and promotion expenses as well as higher staff costs, while 3) Non-alcoholic Beverages recorded a 5.0% reduction in net loss on higher sales volume and lower advertising and promotion expenses.

Consequently, excluding Sabeco expenses and non-recurring expenses of THB2.5b, ThaiBev’s 1QFY18 core PATMI fell 30.4% YoY to THB5.4b, forming 20% of our FY18 estimate.

With regards to the bridging loan ThaiBev provided to its 49%-owned associate, Vietnam Beverage (VB), to finance the acquisition of Sabeco, management noted that it is in the process of converting the bridging loan to a long-term shareholder loan to VB.

While ThaiBev reiterated the shareholder loan will generate interest income, its current plan of deleveraging through repaying bank loans using internal cash and dividends from the acquired companies seem to be insufficient (i.e. high net gearing situation may last beyond 24 months).

Pending more details from its analyst meeting on 21 Feb, we put both our rating and FV under review for now.

Source: OCBC Research - 15 Feb 2018