• Maintain BUY and a new SGD1.02 Target Price from SGD1.06, with 40% upside.
• We remain positive on ThaiBev’s medium-term prospects despite near-term softening of demand. With consumer confidence at a 40-month high, we expect premiumisation in alcohol consumption to be realised in 2-3 years. This is in conjunction with efforts to introduce higher-value products like Ruang Khao Silver, Blend 285 Signature and Federbrau.
• New products like Kulov Max Seven and Star Cooler are also expected to bring higher margins and reach out to a wider consumer base.

Near-term Negatives Priced in

YTD, we see the softening of alcohol demand in Thailand from lower consumption in the upcountry. The FIFA World Cup also does not seem to have much of an effect on beer sales in May, based on Thailand’s Office of Industrial Economics statistics. We think this has largely been priced in, given Thai Beverage’s share price has fallen 20.7% YTD.

Outlook to Improve From Here on

Consumer confidence is at a 40-month high and GDP is growing at its fastest in five years, boosted by robust exports and tourism. This should eventually have a trickle-down effect to rural income.

Price increases for rice and maize as well as a slower contraction of rubber prices should help to raise farm incomes.

The general election is also expected to take place in May 2019. We expect more cash and incentives to be circulated in the rural areas, as campaigning kicks off ahead of the elections. These factors should help raise consumption in the upcountry, and benefit ThaiBev.

Premiumisation in the Medium Term

Over the last 12 months, ThaiBev has launched new products such as Kulov Max Seven and Star Cooler to target the ready-to-drink segment and female consumers. It also introduced more premium products such as Ruang Khao Silver, Blend 285 Signature and Federbrau to capitalise on the rising affluence of consumers in the medium term. We believe this would help raise margins over the next 2-3 years, as consumers trade up to these premium drinks with rising wages.

Widening of portfolio also allows it to generate greater economies of scale.

Maintain BUY

We trim our earnings by 3-4%, which leads to a new SGD1.02 Target Price due to the lower-than-expected beer sales in May. However, we are positive on medium term prospects on strong economic growth and potential margin expansion from new products.

Near-term, higher rural income driven by campaigns for the upcoming elections would be a positive catalyst for alcohol consumption.

Key risks include slower- than-expected recovery in consumption and intensifying competition.

Source: RHB Invest Research - 12 Jul 2018