• Disappointing set of results
• Close to 5y trough valuations
• Patience needed Below expectations; core PATMI made up

87% of Full-year Forecast

Thai Beverage PLC’s (ThaiBev) FY18 results were below expectations. FY18 revenue increased 21% YoY to THB 229.7b or 99% of our full-year forecast, while gross profit increased 16% YoY to THB 67.2b. Core EBITDA was up 5.2% to THB 38.5b. Operating profit was down 22% YoY to THB 20.7b due to higher distribution, administrative and finance costs.

PBT excluding non-operating items was down 11% YoY to THB 27.8b. All-in-all, core PATMI was down 19% YoY to THB 21.0b and came up to only 87% of our full-year forecast.

Management attributed the soft results to lackluster demand locally on the back of

1. the slow economy,
2. an increase in product prices after the implementation of higher excise tax rates at the end of 2017, and
3. an elderly fund tax at the beginning of 2018.

The annual dividend declared is 0.39 Baht per share, compared to 0.67 Baht in FY17.

Domestic Spirits and Beer Volume Down 12% and 11% YoY

ThaiBev’s Spirits division contributed 89.3% of the group’s net profit (excluding F&N/FPL and non-recurring expenses), while its Beer division contributed 14.2% and its Non-Alcoholic Beverages contributed -6.3%.

Spirits revenue was down 3.1% YoY to THB 105.9b. Spirits sales volumes excluding Grand Royal Group’s sales was down 11.5% YoY, due to lower domestic purchasing power and a high-base effect given higher purchase orders by agents and retailers made in advance of the excise tax increase.

Spirits EBITDA was down more than proportionally with a 12.0% decline to THB 24.0b, due to an increase in advertising, promotion, and staff costs. Meanwhile, Beer sales was up 64.9% YoY at THB 94.5b with EBITDA doubling YoY to THB 9.3b due to the contribution from Sabeco. Sales volume excluding Sabeco fell 11.4% YoY, similarly due to soft domestic demand. Sabeco contributed positive net profit to the beer business, as net finance cost related to the acquisition was less than the profit.

Attractive Valuations, But Patience Needed

We continue to be wary on domestic economic weakness and the dampening effect of the increase in excise tax, which we had previously under-estimated.

We do not expect a sharp turnaround in terms of the operational outlook. Nonetheless, valuations continue to be attractive with ThaiBev trading at a FY19F P/E of 15.7x (Bloomberg consensus) as at 26 Nov’s close, more than 1 standard deviation below its 5-year mean and close to its 5y trough of 14.7x.

We continue to expect positive synergies from the Sabeco acquisition, but note that this will require time to bear fruit. After adjustments, our fair value decreases from S$0.89 to S$0.85. Maintain BUY.

Source: OCBC Research - 27 Nov 2018