• Thai Beverage announced 9MFY20 EBITDA of Bt35.2b, down only marginally 3% y-o-y, in spite of the alcohol ban and COVID-19 restrictions. Spirits volumes were resilient with a significant recovery in May. While the beer segment may be at a higher risk from a second wave of pandemic restrictions, the dominant spirits segment is robust with its off-premise consumption nature.
• Thai Beverage is attractively priced, currently trading at 16x (- 2SD to its 5-year mean PE).
• Maintain BUY with a target price of S$0.78.

Thai Beverage's 3QFY20 Update

Solidly tracking expectations; 9MFY20 EBITDA only declined marginally by 3% yoy.

• Thai Beverage (SGX:Y92) announced 9MFY20 EBITDA (including associates’ contribution) of Bt35.2b, down slightly y-o-y. While we note that 3QFY20 EBITDA was down 19% y-o-y, this came on the back of the alcohol ban in Thailand amidst COVID-19 restrictions and was a solid quarter for the group.

Revenue resilient.

• Revenue decreased to Bt53.0b (-15.4% y-o-y) in 3QFY20, despite the effects of the COVID-19 restrictions. Sequentially, the fall in revenue was relatively constant (2QFY20: -12% y-o-y).
• Revenue was mainly affected by the beer segment of which Sabeco saw a larger impact with the decline in sales, hurt by the effects of the pandemic as well as the drink driving law in Vietnam.

Financials improving.

• Thai Beverage has made early repayments of short-term loans totalling Baht 5.7b by using excess cash flow with no prepayment penalties. Net gearing position has been steadily reducing in recent quarters, paring down to 1.13x as of 3QFY20 (2QFY20: 1.16x).

Sprits: Robust volumes, strong margins.

• For 9MFY20, spirits volume decreased 2.5% y-o-y while revenue decreased slightly by 0.5% y-o-y. We note that this implies that spirits volume was down approximately 6% in 3QFY20, a similar rate of decrease as compared to 2QFY20. This is in light of the temporary alcohol ban as well as temporary closure of entertainment venues in Thailand during the quarter. The group noted that sales of spirits in Thailand has since recovered and performed much better in May and June to the extent of covering most of loss in sales due to April’s lockdown.
• We note that spirits’ EBITDA margins came in strongly at 24.0% (+1.3ppt y-o-y, +0.7ppt q-o-q), with the group citing the strength of its product portfolio and selling expenses reduction in both Thailand and Myanmar.

Beer: Improved performance; remain cautious on second wave of infections.

• Beer volumes dropped 20% y-o-y in 3QFY20, a smaller decline as compared with 2QFY20 (- 28% y-o-y). The group noted that business performance in Vietnam has begun to recover since the initial lockdown, though risk remains from the resurgence of COVID-19 cases. The group’s Thai beer segment saw improved performance in which the group cited a third-party market report, which saw Thai Beverage’s market share in Thailand continue to grow, reaching a record high comparable to levels achieved in Apr 16.
• Thai Beverage also highlighted that sales volume for Thailand beer only decreased marginally y-o-y despite the temporary ban on alcoholic beverage sales

Food: Affected by lockdown; NAB: Cost management.

• 9MFY20 revenue was Bt9.9b, down 14.7% y-o-y as a result of nationwide prohibition on dine-in at restaurants during Apr to mid-May 20. EBITDA was up substantially in 3QFY20 as a result of cost management via the reduction of advertising and promotion expense, coupled with recognition of other income from gains on the back of insurance claims.

Thai Beverage - Valuation & Recommendation

• Maintain BUY with an unchanged SOTP-based target price of S$0.78.
• We value:
  • the spirits business at 17x EV/EBITDA, in line with global peers’,
  • the beer business at 15x EV/EBITDA, in line with peers’ average,
  • the NAB business at 2.5x EV/sales, a discount to peers’ 3.5x, and
  • the food business at 14x EV/EBITDA, in line with local peers’.
• Frasers Property (SGX:TQ5) and F&N (SGX:F99), in which Thai Beverage owns 28% each, are valued based on market value.
• Thai Beverage currently trades at 16x FY20F PE, at -2SD to its 5-year mean PE (14x FY21F PE). We opine that Thai Beverage is undervalued, with proven resilience in its recovery especially with its main segment, spirits.
• Key risk includes Sabeco, for which Vietnam has seen resurgence in COVID-19 cases.
• Share price catalyst
  • Recovery of volume consumption due to easing of stay-home measures.
  • M&As.

Source: UOB Kay Hian Research - 17 Aug 2020