• Although the current political situation in Thailand may present potential uncertainty in consumer sentiment, we believe that with initiatives to spur domestic consumption still in place, current direct effects are not too significant. In addition, Vietnam has also begun its second wave recovery.
• Thai Beverage (SGX:Y92) is attractively priced, currently trading at 14x FY21F PE (-2SD to its 5-year mean PE). Maintain BUY.

Potential Political Uncertainty in Thailand

• The effects of political uncertainty have previously taken place in Thailand, with the most recent being in the 2014 coup. While current protests in Bangkok could potentially raise the risk in consumption sentiment, our checks revealed that there has not been significant direct impact as a result of the protests yet. Consumer products have also not been banned.

Domestic Consumption Still Key..

• The authorities are still aiming to boost domestic consumption, including for low-income earners. Most recently, the government has approved a Bt3,000 cash handout to 10m people, which must be spent in 4Q20, to buy food, beverages and general goods (excluding lottery tickets, alcoholic drinks, tobacco and services) from small vendors, according to the Bangkok Post.
• The Bt30b budget cash handout is part of a budgeted Bt51b package (the remaining Bt21b will go to 14m welfare cardholders). There is also a separate domestic tourism stimulus package known as “We Travel Together”, which aims to provide subsidies for tourism services, including food, capped at Bt600 per room per night.

…with Farm Income Supported by Agriculture Prices

• We also highlight the farm income index, which was up 9% y-o-y in Aug 20, supported by increased agricultural product prices such as rubber. On a ytd basis, the index is largely flat, having seen a substantial recovery from a low in Apr 20, according to the Office of Agriculture Economics. We view this positively as a good precursor to potential discretionary spending, especially for Thai Beverage’s spirits segment.
• Recall that Thai Beverage spirits segment accounted for 83% of attributable profits in FY19.

Vietnam Recovers Again

• Recall that after COVID-19 resurfaced in Jul 20 in hotspots of Da Nang and Quang Nam, bars and pubs in Vietnam were forced to close to curb the spread of the second wave. Recently, in mid-Sep 20, with the daily reported new cases substantially under control, the authorities have allowed 180 bars and clubs to be reopened in Ho Chi Minh City while Hanoi has allowed reopening with compliance measures.

2014 Thailand Coup Case Study

• Thai Beverage noted that in 2014, political events had affected the domestic beverage business in the 1H of the year, with the coup having occurred in May 14. There was a gradual recovery following improvement in the political situation.
• We note that beer consumption had been affected to a larger extent as compared to spirits, with beer sales volume declining 2.4% y-o-y in 2014 vs spirits’ decrease of 0.3% y-o-y. This could be largely due to direct effects from the tourism industry, which included travel advisories into Thailand, though there were also other factors such as the excise tax increase.
• It is prudent to note that the political situation is now different as compared to 2014, including the protest circumstance, as well as the COVID-19 pandemic, which has already affected the tourism sector in Thailand. We opine that direct effects from the current political situation are likely to be minimal, though the risks of larger impact events are still present, potentially boycotts or legislative changes (eg excise tax increase and alcohol beverage policies).

V Is for Vietnam

• We are encouraged by the swift recovery in beer production volumes following the first wave of COVID-19 infections in Vietnam, and opine that the market remains intact as a key growth area for Thai Beverage. The reopening of entertainment venues will be a first step for an uplift in beer consumption, though we think that a wider scale recovery will also stem from further easing of restrictions.

Thai Beverage - Valuation & Recommendation

• Maintain BUY on Thai Beverage with unchanged SOTP-based target price.
• Thai Beverage currently trades 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 spirits segment.
• Key risk includes political uncertainty and the resurgence of subsequent waves of COVID-19 infections.
• Thai Beverage is also one of the UOBKH's alpha picks for September 2020.

Source: UOB Kay Hian Research - 28 Sep 2020