• Thai Beverage (SGX:Y92) released its 3QFY22 (1 Apr 2022 to 30 Jun 2022) business update where 9MFY22 revenue was in line while EBITDA was slightly above our expectations. This was driven by a stronger-than-expected recovery in the beer segment.
• Despite lower molasses costs, the spirits segment underperformed, dragged down by rising packaging costs.
• We reckon Thai Beverage is an attractive and undervalued stock with high potential upside.

Thai Beverage Reported Robust 3QFY22

• For 9MFY22, Thai Beverage reported revenue and EBITDA of Bt207.9b (+8.2% y-o-y) and Bt39.1b (+6.7% y-o-y), forming 75.6% and 80.6% of our full-year forecasts respectively. 9MFY22 was slightly above expectations due to a strong 3QFY22.
• For 3QFY22, both revenue and EBITDA grew 6.8% y-o-y and 4.8% y-o-y respectively, driven by the beer segment as most COVID-19 restrictions were relaxed. 9MFY22 EBITDA margin softened slightly by 0.3ppt y-o-y to 16.7%.
• Based on our estimates, Thai Beverage is on track to post strong annual y-o-y growths for FY22 revenue (12.0% y-o-y) and EBITDA (13.3% y-o-y) respectively.
• Spirits: Dragged down by rising costs. Slightly below expectations, 9MFY22 spirits revenue and EBITDA fell 1.1% y-o-y and 5.2% y-o-y respectively, forming 73.0% and 72.0% of our full-year forecasts.
  • The underperformance was largely due to a weak 3QFY22, with revenue and EBITDA falling 8.3% y-o-y and 11.4% y-o-y. Although 9MFY22 sales volumes was stable y-o-y, 3QFY22 volumes fell 14.0% y-o-y which we reckon was due to lesser discretionary spending caused by record-high inflation. Lower molasses costs in 3QFY22 were outpaced by higher packaging costs, compressing margins.
  • Moving forward, the opening of entertainment venues on 1 Jun 22 would help boost consumption for the higher margin brown spirits, supporting/expanding margins.
• Beer: Outperformance as sales volumes grew. Slightly above expectations, 9MFY22 revenue and EBITDA increased 15.3% y-o-y and 26.5% y-o-y respectively, forming 74.5% and 80.4% of our full-year forecasts.
  • Outperformance was led by a robust 3QFY22 where revenue and EBITDA surged 16.5% y-o-y and 42.8% y-o-y. Backed by two ASP hikes in 1HFY22 and the relaxation of COVID-19 measures in Thailand and Vietnam in 3QFY22, 9MFY22 sales volumes grew 6% y-o-y while 3QFY22 volumes grew 7% y-o-y.
  • Furthermore, an improved product mix along with better cost control measures led to better margin expansion.
  • Based on current estimates, Thai Beverage is on track to grow FY22 full-year beer segmental revenue and EBITDA by 20.5% y-o-y and 36.0% y-o-y respectively.
• Non-alcoholic beverage: Boosted by economic recovery. Above expectations, 9MFY22 revenue and EBITDA were up 9.7 % y-o-y and 5.4% y-o-y respectively, forming 88.3% and 78.8% of our full-year forecasts.
  • This was led by an 8.4% improvement in sales volume amid Thailand’s strong recovery in economic activity. 3QFY22 revenue and EBITDA grew 12.8% y-o-y and 0.5% y-o-y respectively.
• Food: Recovery from dine-in restaurants. For 9MFY22, food revenue increased 38.6% y-o-y to Bt12.0m from the recovery in dine-in footfall at restaurants, also backed by the group’s continued drive to increase its brand penetration and accessibility.
  • As a result of improved operational efficiency in its portfolio, 9MFY22 EBITDA for the food segment surged 104.1% y-o-y, in line with expectations. 3QFY22 revenue and EBITDA grew 55.6% and 255.2% y-o-y respectively.

Postponement of BeerCo IPO Yet Again

• Thai Beverage announced that the group has decided to defer the IPO of its beer business due to prolonged challenging market conditions, just three months after reviving plans for the listing. It was also noted that Thai Beverage would continue to monitor market conditions and review the proposed listing again in the future.
• As a recap, Thai Beverage was seeking to sell as much as 20% of the beer business, raising between US$800m to US$1b which values the beer business at around US$4b-5b (9x-11x FY22F EV/EBITDA), a reasonable valuation in our view given that peers’ average is 13.8x FY22F EV/EBITDA.
• Given the uncertain global macroeconomic conditions, we reckon that the IPO was shelved due to liquidity concerns and expect Thai Beverage to revive the IPO plans once market conditions improve.

Thai Beverage - Earnings Forecast Revision and Recommendation

• We lower our FY22-24 PATMI forecasts for Thai Beverage slightly 3-4%, after accounting for lower spirits volumes and higher beer volumes. Our new FY22-24 PATMI estimates are Bt29,330m (Bt30,467m previously), Bt31,526m (Bt32,709m previously) and Bt34,009m (Bt35,239m previously) respectively.
• Maintain BUY with a lower SOTP-based target price due to lower valuation for the spirits segment as we decreased our spirits EBITDA forecasts.
• However, we still reckon Thai Beverage remains attractively priced at -1 standard deviation of its 5-year mean P/E, backed by an expected earnings recovery underpinned by favourable tailwinds that are already underway.
• Catalysts: M&As, better-than-expected consumptions volumes; better-than-expected tourist arrivals.
• Potential downside to our PATMI forecasts is higher-than-expected raw materials costs.

Source: UOB Kay Hian Research - 26 Aug 2022