• Continued premiumisation of Thai Beverage’s alcohol portfolio will bode well for the group in its bid to gain market share and improve ASP in the medium term. Although a reopening timeline for Thailand has been put in place, which we opine could allow the group to revisit its proposed spin-off plans, COVID-19 restrictions were also tightened in the recent week.
• Nevertheless, Thai Beverage’s earnings will remain robust on its off-trade spirits sales.
• Maintain BUY call on Thai Beverage with SOTP-based target price of $0.92.

What’s New

Continued premiumisation of product portfolio.

• Thai Beverage (SGX:Y92) highlighted additions and improvements to its product portfolio in its recent annual information meeting. The group continues to ride on the trend of premiumisation, enhancing the bottling of Hong Thong brown spirits as well as introducing new beer variants. This includes the Chang Cold Brew, a higher priced variant which has risen in popularity, along with Chang Espresso, a coffee-infused beer.
• For Sabeco, Thai Beverage introduced Bia Saigon Chill in Oct 20, a new mass premium beer which has been well received by customers. Tracking alcohol industry statistics in Thailand, we note that the spirits volume for Apr-May 21 was flat y-o-y (+1.0%) while the beer volume was up (+120% y-o-y) due to the low base seen from the full alcohol ban in 3QFY20.

Manageable gearing levels.

• Thai Beverage has strong cash years and are well below the high of 1.7x seen in FY18.

Deferred IPO still in sight.

• Thai Beverage re-iterates that its beer can be reviewed at an appropriate time.

Reopening timeline in place, though speed bumps along the way.

• In recent weeks, the Thai authorities have accelerated vaccination consumption in most regions is still banned.

Stock Impact

Trend towards reopening could allow for revival of IPO plans.

• While easing of COVID-19 measures can wave of COVID-19 restrictions had hit Thailand.

Downside from spirits segment fairly limited.

• In our view, downside surprises in tax on alcohol. The last excise tax hike occurred in FY17. ASP increases could also come in if a tax hike were to occur as Thai Beverage has maintained the prices of white spirits in recent years.

Earnings Revision / Risk

• None. We expect core net profits to increase 11% y-o-y in 2HFY21, given the full alcohol ban seen in 3QFY20.

Valuation / Recommendation

• Maintain BUY call on Thai Beverage with 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 valued based on market value.
• On valuation grounds, Thai Beverage remains attractively priced, at -1 standard deviation to its mean P/E.

Share Price Catalyst

• Lifting of alcohol restrictions in Thailand.
• M&As/potential spinoff listing.
• Gaining market share in the beer segment.

Source: UOB Kay Hian Research - 1 Jul 2021