• Total returns of 37.2% YTD
• Tempering our optimism on domestic consumption
• Fair value drops 4% to S$0.88

2Q19 Core PATMI Down 12% YoY

Thai Beverage PLC’s (ThaiBev) results were within expectations. 2Q19 revenue increased 4% YoY to THB 70.0b while gross profit improved 2% YoY to THB 20.4b. Net operating profit dropped 9% YoY to THB 6.8b. 2Q19 core PATMI showed a 12% YoY decline to THB 5.8b, which translates to 24% of our initial full-year forecast. On a 1H19 basis, PATMI improved 11% YoY to THB 13.2b or 55% of our initial full-year forecast.

Spirits Volumes Down 3% YoY on Domestic Consumption Softness

The decline in PATMI was mainly driven by poorer results from the Spirits segment, which continues to contribute the bulk of the bottomline. Spirits showed a 5.8% YoY decrease in revenue and posted a 12.2% YoY decline in PATMI to THB 5.7b. Total sales volume of spirits including Grand Royal Group’s sales was down 2.9% to 181.3m litres.

Excluding Grand Royal Group, spirits sales volumes dropped 5.3% YoY to 151.5m litres. Meanwhile, the beer segment recorded a 13.3% increase in sales revenue, and a 60.4% increase in PATMI to THB 217m. Beer volumes increased 10.6% YoY to 663 m litres, on the back of a better domestic market and higher contributions from Sabeco. Excluding Sabeco’s sales, the company’s beer sales volume increased 3.6% YoY.

Look Forward to Sabeco Cost Savings

We note that several cost saving/efficiency initiatives at Sabeco are underway – these include office rationalization, lightweighting carton boxes, and negotiating better bulk purchasing rates for raw materials. While these positive synergies from the Sabeco acquisition will flow through to its bottom line, we note that this will require time to bear fruit.

Looking ahead, aside from the coronation-related celebrations in May, we expect more muted performance from the domestic spirits segment. After adjustments, our fair value drops 4% from S$0.91 to S$0.88. ThaiBev has posted total returns of 37.2% YTD, vs. the Strait Times Index’s 8.6%, as at 10 May’s close. Given the strong rally and the adjustments to our fair value, we downgrade ThaiBev from Buy to HOLD.

Source: OCBC Research - 13 May 2019