Initiate BUY; strong brands with cheap valuation

Initiate coverage on ThaiBev with BUY and TP of SGD0.95, pegged to 20x FY21E EPS. We believe ThaiBev’s portfolio of top brands is well-poised to capture post-Covid recovery, driven by easing restrictions of on-premise consumption. Concurrently, its beer business is positioned for margin expansion as a result of positive operating leverage. The stock is trading at 15.1x FY21E P/E, -1 S.D below historical mean and 65% discount to peers. Potential IPO of BeerCo is a near-term re-rating catalyst, which could lift our TP to SGD1.24.

Cocktail of strong brands poised for recovery

ThaiBev is the largest alcohol beverages producer in Thailand and one of the leading beer producers in Vietnam. It holds a diversified portfolio of strong brands, such as Ruang Khao, Sangsom, Mehkong, Chang Beer and Bia Saigon, which owns 90% of Thailand’s spirit and 43% of Vietnamese beer market share. We believe ThaiBev’s portfolio of market-leading brands is poised to capture the tailwind post-Covid recovery, driven by easing of alcohol bans and re-opening of travel borders. The spirit and beer market is projected to post FY21-25E CAGR of 4.1% and 6.4% respectively. Meanwhile, the non-alcoholic beverages (NAB) division is at the cusp of turning around, driven by a 13% rebound in sales and prudent cost control in 2021. Overall, we are forecasting a revenue CAGR of 6.1% from FY20-23E.

Positive operating leverage driving growth

We remain constructive on ThaiBev’s structural growth and estimate an FY20-23E revenue CAGR of 4.5% for its spirits and 7.3% for its beer divisions. This is driven by volume CAGR of 3.5% for spirits and 7.6% for beer over the same period. Post-Covid recovery, the cyclical upturn is expected to provide further uplift to the current high brewery utilisation rate (~80% in FY20). Our core PATMI is forecasted to jump 18% YoY to THB26.9m on the back of a 6.1% YoY growth in FY21E revenue and operating leverage.

Cheap valuation; BeerCo IPO could push TP to SGD1.24

The stock is trading at 15.1x FY21E P/E, which is -1 SD below its historical average and 65% discount to its global peers’ average of 45x. We believe this is unjustified for one of the top alcohol market leaders in Thailand and Vietnam, coupled with its growth prospects. We also see the potential listing of its beer business and Sabeco (collectively Beerco) by 1H21 as a near-term catalyst .The listing of BeerCo could potentially be valued at SGD10b and could lift our TP by 30% to SGD1.24.

Source: Maybank Kim Eng Research - 28 Mar 2021