• Thai Beverage's FY9/18 core net profit of THB21.0bn was just shy of our FY18F estimate (92.1% of THB22.6bn) and consensus (95.8% of THB21.9bn). 
• The miss was largely due to higher SG&A costs which formed 18.1% of revenue (vs. our 15.8%). Lower interest costs mitigated the bottomline. 
• A final DPS of THB0.2/share was declared. An analyst briefing will be held this evening; we maintain our call and Target Price.

FY9/18 Revenue Grew 21% Y-o-y Despite Lower Spirits Contribution

• Thai Beverage's FY9/18 revenue grew 21% y-o-y on higher beer revenues (+64.8% to THB94.5bn, vs. FY9/17: THB57.3bn), with the consolidation of SABECO beer volumes from 2QFY9/18 onwards.
• FY9/18 spirits revenue fell 3.1% y-o-y to THB105.9bn (vs. FY9/17: THB109.3bn) on lower domestic spirit volumes (-11% y-o-y), but this was mitigated by the inclusion of Grand Royal revenue contributions (THB7.4bn since the acquisition in Oct 2017).

Core Net Profit Fell 19% Y-o-y on Higher SG&A and Finance Costs

• Thai Beverage's FY9/18 EBIT fell 16% y-o-y largely due to higher-than-expected SG&A costs that grew to an all-time high of 18.1% vs. revenue (vs. 16.1% in FY9/17). The spirits segment saw a high proportion of SG&A/revenue spikes which we suspect was due to sustained domestic SG&A expenses despite a decline in volumes.
• FY9/18 finance costs also grew 4x to THB5.0bn (vs. FY9/17: THB1bn) with higher interest costs due to several acquisitions by Thaibev in FY17; especially borrowings taken up for the SABECO acquisition in Dec 17 (which cost THB156.1bn).
• Overall, this led to lower FY9/18 core net profit of THB21bn (-19% y-o-y).

Domestic Spirits and Beer Volumes Stayed Weak

• Thaibev reported that FY9/18 domestic spirit volumes fell 11.5% y-o-y to 535.5m litres; whilst FY9/18 beer volumes fell a similar 11.4% y-o-y to 748.6m litres on the back of a sluggish economy which weighed on consumption patterns.

Key Discussion Points for Analyst Briefing This Evening

• Thaibev is hosting an analyst briefing this evening. We believe key discussion points will revolve around
  1. the outlook for domestic spirits and beer consumption heading into FY9/19F;
  2. updates on potential synergies with SABECO and
  3. further debt refinancing plans in FY9/19F.

Maintain Add, With Target Price of S$0.88

• We maintain ADD with an SOP-based Target Price of S$0.88.
• Thai Beverage is trading at an FY19F P/E of 16.0x, below -1 s.d. of its 5-year average mean of 16.8x.
• Upside risks are higher profits and lower net gearing.
• Downside risks are deterioration in earnings.

Source: CGS-CIMB Research - 27 Nov 2018