• Thailand reported positive y-o-y growth in select alcohol consumption volumes and farm income in Aug 19
• Post 4QCY19, farm income could be further boosted by government policies, in our view.
• Stable domestic consumption growth is a boon. M&As in Vietnam and SABECO could unlock value.
• Maintain ADD and SOP-based Target Price of S$1.00.

Positive Volume Growth for Select Alcoholic Beverages

• According to Thailand’s Office of Industrial Economics, the country’s domestic beer, select white liquor and mixed liquor consumption volumes remained in positive territory in Aug 19, rising 6%, 3%, and 21% y-o-y, respectively.
• YTD, domestic beer volumes rose 9% y-o-y; select Thai spirit volumes (white and mixed) rose 8.5% y-o-y.

Farm Income Up; Government Measures Likely Medium-term Boon

• Farm income rose 3.3% y-o-y in Aug 19, propped up by higher agricultural prices especially livestock (pork and chicken), Hommali and glutinous rice, tangerine and lychees.
• According to our Thai analysts, prices of other major crops (plain rice, rubber and palm oil) could have bottomed and consumer spending in upcountry could recover in 1QCY20F on the back of Thai government’s price guarantee measures for main crops and production cost subsidies.

Budweiser Lists on HK Stock Exchange; 2020F P/E of 38.4x

• Budweiser listed on the HK stock exchange on 30 Sep and is currently trading above nearest peers at 2020F P/E of 39x and EV/EBITDA of 19.8x. We reiterate our view that the successful listing of Budweiser, and its bid to grow in Asia, places Vietnam as one of the key markets for brewery M&As. This, in turn, is positive for SABECO which currently trades below Thai Beverage (SGX:Y92)’s acquisition price of VND320k/share.
• During our Jul 19 NDR, Thai Beverage said it was open to potential M&As, as long as they were strategically beneficial. See report: Thai Beverage NDR Takeaways - Solidifying Its Presence.

4Q19F Results Preview

• We estimate Thai Beverage’s 4QFY9/19F net profit at THB4.5bn (-30% q-o-q as 4Q is typically seasonally weaker; +20% y-o-y).
• We see full-year net profit rising 16% y-o-y to THB24.4bn, and its domestic Thai alcohol spirit and beer volume expanding 7% and 6% y-o-y, respectively, in FY19F.

Maintain ADD Call and Target Price of S$1.00

• We are positive on the stabilised domestic consumption environment in Thailand and optimistic the upcoming government measures may have spill-over benefits on farm incomes. M&As and improvements in SABECO’s operations are medium-term drivers. The stock trades at FY9/20F P/E of 18.4x, below its 5-year average and peers.
• Potential re-rating catalysts are higher revenue and margins and M&As involving SABECO.
• Risks to our call are weaker revenue and margins for its domestic business and SABECO.

Source: CGS-CIMB Research - 2 Oct 2019