• The recent government stimulus packages are largely positive in supporting farm income though we remain cautious on its full effects in boosting alcohol volume growth. We think that there may be other inhibiting factors such as tepid organic growth in per capita alcohol consumption and other potential government initiatives, such as a minimum wage hike, that would likely be marginally negative.
• Maintain HOLD with an unchanged SOTP-based target price of $0.87. Entry price: S$0.76.

What’s New

Stimulus package aiding farmers...

• The Thai government recently endorsed a price guarantee scheme worth Bt21b to help cushion farmers from falling rice prices, which is expected to assist 3.9m households. In addition, the authorities have also proposed a stimulus package to drive economic and consumption growth including a debt suspension scheme for farmers afflicted by the drought as well as a boost for tourism spending totalling up to Bt316b.

…but potential minimum wage hike still to come.

• Expectations of a minimum wage hike are likely to gradual in nature, and should rise up to Bt400/day. THAI BEVERAGE (SGX:Y92) had been impacted by the minimum wage hike in FY12 to Bt300/day, which was a rise of approximately 30-40% in several provinces.
• According to the group, the total effects of the minimum wage hike was about Bt100m in FY12, or about 0.4% of net profits. Hence, although it would be negative, we think that any effects of a potential wage hike are likely to be marginal in nature.

Summary of Thailand Stimulus Packages & Rice Subsidies

• Aug 2019: Additional allowance for low income earners and village funds. Consumption stimulus and domestic investment through tourism, offering 10m Thai travellers Bt 1000 in spending money; and SME funding. Assisting drought inflicted farmers with interest rate reduction and loan repayment extension.
• Aug 2019: New rice price guarantee scheme for farmers, govt to pay farmers a fixed fee of between Bt 10,000 – 15,000 per tonne if market prices fall below benchmark
• Sep 2017: Bt 73b in loans and handouts to help stabilise prices for rice farmers Sep 2016 Bt 76b in loans and handouts to rice farmers
• Sep 2015: Govt stimulus in the form of Bt 136b to help SMEs and farmers gain access to loans

Stock Impact

Historically, stimulus will boost farm income, but alcohol consumption growth may not be a given.

• 2019 stimulus differs in several aspects to the 2015 package, such as its larger size and breadth of coverage. A review of the 2015 stimulus has shown a corresponding improvement in farm income. However, we note that due to the effects of the excise tax regulation, consumption volume growth may not be as robust for domestic spirits.
• On average, Thai Beverage’s domestic spirits volume has grown about 1.0% y-o-y since 2016.

Other factors may inhibit substantial growth.

• While the debt suspension scheme may help, household debt remains at elevated levels. In addition, Thailand is also ranked third in Asia in terms of alcohol consumption per capita according to the World Health Organisation and tepid growth is projected in the near term of 1.2% y-o-y, similar to the average rates seen in Thai Beverage’s domestic spirits volume.

Earnings Revision / Risk

• None. Based on our sensitivity analysis, every 2.5% increase in spirits volume may improve Thai Beverage’s FY20 earnings by up to 2%.

Valuation / Recommendation

Maintain HOLD with an unchanged SOTP-based target price of S$0.87.

• We value:
  1. the spirits business at 17x EV/EBITDA, in line with global peers’;
  2. the beer business at 15x EV/EBITDA, in line with ASEAN peers’ average;
  3. the non-alcoholic beverage business at 2x EV/sales, a discount to peers’ 3.0x as Thai Beverage’s NAB business is still loss-making; and
  4. the food business at 15x EV/EBITDA, in line with local peers’.
• Frasers Property (SGX:TQ5) and Frasers & Neave (SGX:F99), in which Thai Beverage owns 28% each, are valued based on market value.
• Entry price is S$0.76.

Treading cautiously.

• We think that recent the back of low raw material costs seen in the previous quarter.
• Thai Beverage is trading at 19.8x FY19F PE, close to its 5-year historical mean levels.

Share Price Catalyst

• Successful ramp-up of Sabeco.
• Gaining market share in the beer segment.
• M&A.

Source: UOB Kay Hian Research - 2 Sep 2019