• While the deferment of a proposed spinoff in Thai Beverage’s beer business could imply a longer road to recovery for the beer segment as new COVID-19 restrictions are implemented in Thailand. Thai Beverage’s core spirits segment should remain resilient in view of its majority off-trade sales.
• Maintain BUY and SOTP-based target price of $0.92, as Thai Beverage (SGX:Y92) remains attractively priced at 17x FY21F P/E, -1 standard deviation to its mean P/E.

Thai Beverage Deferring Spinoff of Beer Business

• Thai Beverage announced the deferment of the proposed spinoff of its beer business. This is in view of the current uncertain market conditions and volatile outlook, aggravated by the worsening COVID-19 pandemic in Thailand and other countries. The group continues to highlight the growth potential of its beer business unit.

Thailand’s COVID-19 situation worsens.

• With a sharp increase in new COVID-19 cases in the past week, the authorities have introduced several restrictions. According to the Centre of COVID-19 Situation Administration (CCSA), these include the closure of all nightlife venues across all provinces, while the serving of alcohol is banned in restaurants. These measures will last for at least two weeks.

Beer recovery delayed in Thailand.

• Thailand has seen lower beer volumes on a y-o-y basis in recent months, while Vietnam has returned to encouraging growth. The spirits volume in Thailand appears to have remained robust in FY21 (5MFY21: +0.4% y-o-y; Feb 21: +25.0% y-o-y, +1.5% m-o-m).

COVID-19 Measures Not Harsh for Now

• The ban on the serving of alcohol will likely derail the beer segment’s on-trade sales recovery, though the new measures are not as severe as compared with the nationwide blanket ban in 2020. Advertising and promotional expenses should remain well controlled with the reduced serving of alcohol. The risk of COVID-19 cases rising remains and we may turn more cautious if stricter measures are introduced.

Still in High Spirits

• While the deferment of the proposed spinoff if the spirits segment continues to show resilience in sales volume.

Lower Thai Beverage's FY21-23F Earnings Forecast by 3-4%

• Thai Beverage Blog Articles
• We lower our beer volume assumptions given the lower SOTP-based target price of S$0.92.
• We value:
  • the spirits business at 17x EV/EBITDA, lower than global peers,
  • the beer business at 18x EV/EBITDA, in line with ASEAN peers,
  • the NAB business at 2.5x EV/sales, 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 attractively priced, at -1 standard deviatoin to its mean P/E, and we recommend accumulating on weakness.
• Catalyst to Thai Beverage's share price:
  • Lifting of alcohol share in the beer segment.
  • M&As/potential spinoff listing.

Source: UOB Kay Hian Research - 20 Apr 2021