• Thai Beverage's 3QFY21 EBITDA of THB11.3bn (+3% q-o-q, +20% y-o-y) was above expectations. Strong margins offset weaker-than-expected sales growth.
• Amid tighter COVID-19 restrictions, we like Thai Beverage’s defensiveness, given its strength in off-trade channels and strong product portfolio.
• Reiterate ADD and our target price of S$0.84 for Thai Beverage

Thai Beverage's 3QFY21 Topline Weakness Offset by Margin Expansion

• Thai Beverage (SGX:Y92) reported a 3QFY21 (Apr 2021 to Jun 2021) EBITDA of THB11.3bn (+3% q-o-q, +20% y-o-y), above expectations, as 9M21 EBITDA came in at 88%/83% of our/Bloomberg consensus’ estimates. 9M21 topline of THB192.1bn (+1% y-o-y) was weaker than expected, but this was offset by stronger-than-expected EBITDA margin expansion to 19.1% (9M20: 17.3%).

Resilient Revenue Thanks to Strength in Off-trade Channels

• Despite COVID-19-related measures causing temporary relatively resilient vs peers, given:
  1. its strong presence in off-trade channels, and
  2. it being a potential beneficiary of down-trading behavior, with its positioning as a mass player for beers in Thailand and Vietnam and strong 90% market share in the Thai spirits space.

Prudent Cost Control

• Thai Beverage’s prudent cost control has aided EBITDA margin expansion across its key product lines, with the exception of food business, which suffered from lower footfall. We believe Thai Beverage has been spending less on advertising given the lack of major events, and has instead focused on improving its distribution channels to drive sales.
• With continued efficient spend, we forecast Thai Beverage to achieve an EBITDA margin expansion to 18.7% for FY21F (FY20: 17.5%).

Defensive Play; Reiterate ADD on Thai Beverage

• Despite near-term uncertainties with regards to its strong market share in Thai spirits business and its continued drive to gain market share over the long-term in Vietnam’s beer market.

• Reiterate ADD, with an unchanged SOP-based target price of S$0.84 for Thai Beverage.
• Potential re-rating catalysts include a swift recovery in volumes post lifting of COVID-19 restrictions and the resumption of BeerCo listing plans.
• Downside risks: prolonged lockdowns in Vietnam and Thailand.

Source: CGS-CIMB Research - 13 Aug 2021