On Track to Deliver; Maintain BUY

• Thai Beverage (SGX:Y92)'s 1HFY21 PATMI of THB14.4b is ahead of MKE/consensus estimates at 54/55%. This was driven by lower-than-expected effective tax rate of ~ 17% due to the absence of tax expenses relating to restructuring of its beer business. We raise our Thai Beverage's FY21-23E earnings per share forecast by 4% to reflect this. As a result, target price for Thai Beverage is raised to S$0.99, pegged to 20x FY21E P/E.
• With 48% upside, BUY.

Spirits Undisturbed by COVID-19

• Thai Beverage's 1HFY21 revenue of THB131.3b (-4.3% y-o-y) was in line with MKE/consensus estimate. The decline was mainly due to a fall in sales of beer (-5.1% y-o-y to THB54b), non-alcoholic drinks (-12.6% to THB7.6b) and food (-20.7% to THB2.8b) due to the impact of new COVID-19 cases in Thailand.
• However, its spirits business remained the biggest profit driver. The division’s revenue (-0.6% y-o-y to THB63.9b) continued to remain resilient, while net profit margin saw a 0.8ppt expansion to 20.1% due to prudent cost controls. Sales volume remained stable at 355m litres (-1.2% y-o-y) as off-premise (at home) consumption continued to be the driver for this segment.

Beer Business: Margin Expansion Continues

• Despite lower sales volume of 1,145m litres (-5.3% y-o-y) amid temporary closure of bars and entertainment venues, Thai Beverage is ahead of its peers as the industry saw a 10% promotional spending to drive off-premise sales, which has been a key strength of Thai Beverage.

Strong Brands With Cheap Valuation

• Against the backdrop of its resilient results, Thai Beverage declared an interim dividend below its historical average.

• We believe subsequent net margin expansion from its beer division and the post-COVID consumption recovery could help narrow the P/E gap. Thai Beverage's portfolio of top mass-market brands is also well positioned to capture post-COVID recovery, driven by easing restrictions of on-premise consumption.

Source: Maybank Kim Eng Research - 17 May 2021