Thai Beverage Public Company: Remaining optimistic given attractive valuations
- FY23 revenue and earnings slightly below expectations by 1.6% and 5.3% respectively
- Miss was largely a result of underestimation of brand investment in spirits segment, higher mix of brown spirits and market reopening
- FY24F/25F earnings revised down by 4.0%/2.9% on higher A&P mitigated partly by higher interest income
- Maintain BUY with revised TP of S$0.72
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FY23 revenue increased 2.5% y-o-y while earnings fell 8.9% due to increase in advertising and promotion (A&P) and lower share of associates/JV income. Thai Beverage (THBEV) reported its FY23 results with revenue of THB279bn and earnings of THB27.4bn. Spirits segment saw resilient revenue and earnings growth on better product mix, as per our expectations. Whereas Beer segment continues to face challenging market condition in particular Vietnam with estimated 9% decline in volume and higher A&P spend on heightened competition, which was largely expected with the read through from Saigon Beer Alcohol Corporation’s (Sabeco) results.
Gross margin expanded 0.2ppt y-o-y while EBIT margin declined by 1.2 ppts. Gross margin was stronger y-o-y on margin improvement in Beer segment, largely in the Thailand market as the company saw production efficiency improvements and implemented price hikes, which more than offset higher raw material and packaging cost. However, EBIT margin declined largely on higher A&P spend in both Spirits and Beer segments. We believe this was on the back of brand investment on expectations of higher consumption along with the expected tourism arrivals.
Gearing up marginally on acquisition of Oishi Group and lower earnings. The company continues to be cash flow generative with THB32bn in operating cash flow, which allowed the company to fund the Oishi acquisition (~THB4.1bn) without taking on further debt. Overall gearing ticked up slightly from 0.63x in FY22 to 0.65x in FY23. Net debt remains roughly similar to last year, but due to lower EBITDA, net debt to EBITDA ticked up from 2.90x in FY22 to 3.08x in FY23.
Proposed THB0.45 final dividend at 55% payout ratio. The company kept total dividend at THB0.60, the same as last year with a higher payout ratio of 55% in FY23 versus 50% in FY22. Book closure for the proposed final dividend will be on 8 Feb 2024, with payment expected on 28 Feb 2024.
Post results Analysts’ call key takeaways
We highlight the key salient points from the post-results analysts’ call held on the evening of 23 Nov:
Spirits – Management continues to see growth headroom for brown spirits as volume remains below pre-Covid with return of tourists. To push more sales of brown spirits, the company expects A&P spend to remain stable. The company is also planning to implement price increases for smaller volume SKUs that have maintained the same price for the past 5 years.
Beer – Management noted that while volume declined in Thailand due to the macroeconomic climate, the overall value of the beer market grew on the back of price increases by industry players to counter cost inflation. On the threat of the entry of Carabao, the company will aim to defend its shelf space and opines that Carabao is unlikely to gain significant market share given its higher price point and lack of unique value proposition.
Excise tax – In response to questions, management opined that an excise tax hike, if any, could occur in 2Q or 3Q 2024 if the government requires funding. Nonetheless, the company remains confident in passing on the higher excise cost and has a track record of doing so. In addition, management shared that an increase in excise tax affects all players in the market.
Balance sheet – Management does not see major refinancing risk due to its status as an investment grade company in Thailand and overall relatively conducive interest environment in Thailand, vis-à-vis other markets.
Our views
Revenue and earnings slightly below FY23F estimates. Revenue slightly missed estimates by 1.6% on lower-than-expected Beer and Spirits revenue whereas earnings missed estimates by 5.3% on our underestimation of brand investment in Spirits segment and lower than expected associates/JV contribution.
Current debt remains manageable despite leverage ratios slightly higher. While overall leverage ratio ticked up slightly, this was largely a result of the Oishi acquisition. We believe leverage ratios should continue to improve in the coming years as the business remains highly cash generative with sufficient cash flow to maintain higher dividend payout ratio and pare down debt in the coming years.
Likelihood of higher excise tax is on the watch list. With the Thailand government expected to distribute Bt500bn to their citizens digital wallets, we believe it is highly likely that excise tax will increase to provide the required funding. The magnitude of the tax increase will be key, though we believe it should be manageable as the authorities do not want to risk a collapse in volume and end up with overall lower excise revenue. We have factored in price increases for alco-beverage in Thailand to cover the excise tax increase.
Keeping dividend on par with last year despite lower revenue, a sign of shareholder commitment. While the company saw an 8.9% decline in earnings, it has continued to maintain a total dividend of THB0.60, the same as last year. We believe this is a strong signal to investors that the company is focused on delivering shareholder return and committed to establish itself as a dividend steward with a stable dividend payout.
Overview of earnings revision
Spirits – We revised revenue slightly upwards by 1.6%/3.5% in FY24F/FY25F as we believe volume should recover as inflation eases and the company could implement low single digit price increases as there is room for price revisions for its smaller volume SKUs. We tweaked operating margins slightly downwards to account for higher brand investment and molasses input cost.
Beer – We revised revenue downwards by 3.5%/2% in FY24F/25F as Thailand beer performed below estimates in FY23. We also tweaked operating margins slightly lower to account for higher brand investment.
Non-alcoholic beverage – We revised revenue upwards by 2.2% for FY24F and 25F to reflect the better-than-expected FY23 performance. We also adjusted operating margins to be in line with sequential margin expansion since FY21.
Food – We revised revenue down by 0.5% in FY24F and FY25F to account for lower-than-expected FY23 performance. We also revised our operating margin assumption down to account for higher expenses from continued new store expansion.
Valuation
Maintain BUY with revised TP of REF TP \* MERGEFORMAT S$0.72. We revised our forecasts down marginally by 3-4% for FY24F/25F, on the back of higher A&P, mitigated partially by higher interest income. Our TP is adjusted to REF TP \* MERGEFORMAT S$0.72. Valuation remains compelling as we see the company’s topline and bottomline growing by 5.8%/5.7% and 9.9%/8.0% in FY24F/25F respectively from a low base in FY23 due to the weak economy. Our TP implies 15.9x PE, which represents ThaiBev’s average 15- year historical 12-month forward PE.
| FY Dec | 2Q2019 | 1Q2020 | 2Q2020 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 69,992 | 75,680 | 61,411 | (12.3) | (18.9) |
| Cost of Goods Sold | (49,569) | (54,045) | (42,787) | (13.7) | (20.8) |
| Gross Profit | 20,423 | 21,635 | 18,624 | (8.8) | (13.9) |
| Other Oper. (Exp)/Inc | (11,392) | (11,231) | (10,685) | (6.2) | (4.9) |
| Operating Profit | 9,030 | 10,404 | 7,939 | (12.1) | (23.7) |
| Other Non Opg (Exp)/Inc | 164 | 295 | 483 | 194.5 | 63.4 |
| Associates & JV Inc | 675 | 1,319 | 860 | 27.5 | (34.8) |
| Net Interest (Exp)/Inc | (1,600) | (1,401) | (1,391) | 13.0 | 0.7 |
| Exceptional Gain/(Loss) | 5.48 | 0.00 | (44.7) | nm | nm |
| Pre-tax Profit | 8,275 | 10,618 | 7,846 | (5.2) | (26.1) |
| Tax | (1,518) | (1,405) | (2,270) | 49.6 | 61.6 |
| Minority Interest | (967) | (790) | (624) | 35.4 | (21.0) |
| Net Profit | 5,790 | 8,423 | 4,952 | (14.5) | (41.2) |
| Net profit bef Except. | 5,785 | 8,423 | 4,997 | (13.6) | (40.7) |
| EBITDA | 9,869 | 12,019 | 9,282 | (5.9) | (22.8) |
| Margins | |||||
| Gross Margins (%) | 29.2 | 28.6 | 30.3 | ||
| Opg Profit Margins (%) | 12.9 | 13.7 | 12.9 | ||
| Net Profit Margins (%) | 8.3 | 11.1 | 8.1 |
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Related Stories
- Thai Beverage PCL: 1Q24 Business Update: Decent start with sequential improvement expected15 Feb 2024
- Thai Beverage PCL: News update clarification: Thai alcohol tax cut pertains to “home-based” fermented alcoholic beverages rather than all “spirits”04 Jan 2024
- Thai Beverage PCL<News Alert>: Thailand alcohol tax cut a boost to booze03 Jan 2024