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Background

Thailand is set to open Phuket to vaccinated foreign visitors without any quarantine from July 1 as the Southeast Asian nation makes a fresh bid to revive its tourism industry.

This is one major step undertaken by the Thai authorities in slowly opening up the entire thailand to international travel again. The tourism industry contributed 21.9% to its annual GDP in 2019. If this sandbox plan succeeds, we may see a surge in tourists arrival in the the months ahead, overflowing into 2022.

One company that came to my mind was Thai Beverage. We saw that the price of Thai Beverage had came down in the last couple of months since it hit 85 cents on the 8th of February 2021. For the record, the price traded prior to covid was around 90 cents.

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The recent coup in Myanmar triggered the selling of the stock. On the 1st of February, the military detains Aung San Suu Kyi, President Win Myint and other senior figures from the ruling National League for Democracy (NLD) in an early morning raid, hours before Myanmar’s new parliament was set to meet for its first session.

And on the 8th of February, Military imposed a curfew in Yangon, Mandalay and other townships, and banned gatherings of more than five people in a bid to stamp out growing protests.

Min Aung Hlaing made his first televised address to the nation and promised to hold new elections in a year and hand power to the winners.

Violence broke out for the first time on the 9th of February, after police fired guns mostly into the air, and used water cannon and rubber-coated bullets to try to clear protesters in the capital Naypyidaw. One young woman was shot in the head with a live bullet and doctors said that she would not survive. New Zealand suspends high-level contact with Myanmar and imposes travel bans on its top generals. That was also the day Thai Beverage started to pull back.

The ongoing political unrest in the country may have contributed to the selling down of ThaiBev shares in the market. This remains a key risk to the company’s business with 75% of their sales deriving from the kingdom.

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ThaiBev weekly trading and funds flows

From the above table, we see that institutions have been net sellers of the shares since the event. But on the week starting 3rd of May, there was a positive inflow from institutional investors which is a good sign. After months of selling, i believe the selling pressure from institutions may be exhausted soon.

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Company’s Fundamentals

ThaiBev derived 75% of its revenue from Thailand, and the remaining 25% classified as InternationalBev. The price of the shares had corrected close to 19% from a high of 85 cents. I think too much negatives have been priced in.

With the economy reopening going forward, Thailand definitely stands to benefit. It is one of the most visited country in Southeast Asia.

Revenue breakdown by Segment 2020 (Source: ThaiBev Annual Report 2020)

Spirits and Beer contributed a total of 88% to total sales of the group. The Spirit segment generated a revenue of Baht 117,297 million, a 2.2% improvement compared to FY2019. Despite being affected by the closure of entertainment venues and restaurants, as well as the temporary ban on alcoholic beverage sales from April to early May, the spirits business remained resilient and recovered quickly as spirits are mostly consumed via off-trade channels. Sales volumes recorded by the business increased 0.2% YoY when including the Grand Royal Group’s sales. The spirits business reported net profit amounting to Baht 22,271 million, a marked improvement of 14.7% due to an increase in
gross profit and a decrease in distribution costs.

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As for the beer segment, the company reacted quickly to the changing consumer needs during the lockdown by retailoring marketing activities, shifting away from their usual focus from events and concerts. In 2020, ThaiBev continued to vigorously drive the beer business’ growth in order to maintain Chang’s position as the leading beer brand in consumers’ hearts and minds. The company employed strategies in three key aspects – brand communication, brand experience, and product packaging. ThaiBev continued to gain market share in the beer segment in thailand during the pandemic. Prudent cost control had also enabled their domestic beer to continually register profit growth.

ThaiBev’s extensive distribution network has enabled the company to attain its pole position in Thailand’s beverage market (Reminded me of Coca Cola).

Despite the lower sales volume in the last financial results, the company continued its net margin expansion as a result of a drop in distribution cost.

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BeerCo IPO

In February, ThaiBev said it was looking to spin off and list brewery unit BeerCo, and had received a no-objection letter from SGX for the listing of around 20% of it. The indirect wholly-owned subsidiary has three breweries in Thailand as well as an interest in a network of 26 breweries in Vietnam. Its business includes the production, distribution and sales of beer, including the Chang and Bia Saigon brands. I believed it was a correct move by the company in unlocking shareholders value. Moreover, alcohol and beer consumption is booming in Vietnam. Vietnamese people consumed 4 billion litres of beer in 2017. This figure is expected to climb to 5.6 billion litres in 2035, according to the Vietnam Beer Alcohol Beverage Association (VBA). Vietnam was also among the world’s top 15 beer-consuming nations in 2018.

However, in April, the company said it will defer the proposed spin-off and listing of its subsidiary BeerCo on the Singapore Exchange “in view of the current uncertain market conditions and volatile outlook, aggravated by the worsening Covid-19 pandemic in Thailand and other countries”.

Going forward, there is still a possibility of listing BeerCo. If this happens, it will unlock shareholders’ value for shareholders of ThaiBev. The proceeds from this listing is expected to be used to pare down debts at the group level. ThaiBev’s credit rating may be upgraded if the listing of BeerCo materialise in the future (Refer to printscreen from https://www.fitchratings.com/research/corporate-finance/fitch-places-thai-beverage-on-rating-watch-positive-on-announced-beerco-spin-off-08-02-2021).

However, the listing remains speculative. It is not definite that the listing will eventually happen, even after the market condition improves. As such, i would take this as any additional bonus as an investor and not priced in this corporate action.

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This image has an empty alt attribute; its file name is image-68.png

Above, I have attached Fitch Ratings reaffirmation of ThaiBev’s credit rating of BBB- and the key rating drivers moving forward.

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5 Year Strategic Plan – Passion 2025

The company announced “Passion 2025” in October 2020, a five-year strategic plan, seeking to entrench ThaiBev as the region’s leading food and beverage firm. Passion 2025 aims to expand the group’s business operations through three main approaches: Build, Strengthen and Unlock. Build is to create new capabilities and business opportunities on an existing-business basis. Strengthen is to build up the core business to maintain and become a leader in integrated food and beverage business in Asean. Unlock is to leverage ThaiBev’s potential to maximise growth capability.

The company is expected to continue its ASEAN footprint in the coming years. I would see this as a risk diversfier, increasing market share in other countries, and in the process, diversify their revenue source as we know that in the current business model, 75% of their income is derived from Thailand. ThaiBev sees tremendous growth opportunity in the beer segment in ASEAN, and they are in a pole position to ride on this growth with 23% market share in ASEAN’s beer market. The estimated potential of the beer market in ASEAN is vast and it is expected to grow to $50 billion or ฿1.5 trillion by 2025 with a flourishing population expected to rise to 700 million people from 660 million now.

Domestically, they are looking at expanding their food business, investing about 1 billion baht on its food empire in fiscal 2021, starting from Oct 1. The new investment is mostly to open 40-50 new restaurants this year, compared with 29 stores in the previous fiscal year. Of the new stores, 30 will be opened for KFC to increase brand accessibility and penetration. This is timely in my opinion, positioning for a recovery the economy of Thailand post-covid. ThaiBev is also expected to spend on technology to enhance customer experience in a post-covid world. New plant-based menus will be included to cater to the growing need for healthy food as well.

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According to Kasikorn Research Center, Thailand’s overall food business is estimated at 385-389 billion baht in 2020, a rise of 9.7-10.6% from 2019. Of the total, 100 billion baht is made up by chain restaurants and the remaining 285-289 billion comes from street food.

Currently, ThaiBev is the largest drinks player in Asean and ranks in the Asian top 10. With the new 5 years strategy, they should be able to build upon their success and grows the company further.

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Strong Branding

The company continues to show strong branding capabilities.

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Investments into building on a positive brand image continues. . This is positive in my view as after all, they are a company engaging in alcoholic businesses which may create negative social issues. Thus, it is important to target efforts towards building a positive brand image in the community.

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Investing into Human Capital

The company is investing into human capital as well. Regional recruitment campaign like the recent internship programs not only improved its corporate image, but enable to recruit talents across the region. After all, a company’s growth is restricted by its human capital capabilities. By pouring investment into this area, it shows me that the company is forward-looking and actively nurturing its workforce and drawing talents into the company.

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Valuation

Current PE stands at 17.1x which is a discount compared to the Asian Beverage industry average of 30.6x. The company’s historical average PE is around 19x.

All data from Thai Beverage Company Filings, last reported 3/31/2021, and in trailing twelve months (TTM) annual period rather than quarterly.

The company’s EPS based on analysts estimates is expected to grow at an annual rate of 5.97% (average of High and Low estimates).

PE 2021 (Estimates): 15.33x

PE 2022 (Estimates): 14.71x

PE 2023 (Estimates): 13.65x

Based on earning estimates and a historical average PE of 19x (post recovery), 12-months target price is $0.90.

2 Stage Free Cash Flow to Equity

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Target Price based on the above model is $0.87.

So from the above, we can see that the last closing price of $0.69 on the 11th of June seems to be very pessismistic.

A lot of negative factors have been priced in, like the ongoing political unrest in both Thailand and Myanmar, the ongoing pandemic in the region, the postponement of BeerCo listing, and the cessation of global travel in the region.

However, in my opinion, i believed some of these factors will improve over time. The pent-up demand in tourism may give the region a boost once it starts opening up to leisure travellers. This will be the catalyst for ThaiBev share price going forward.

The possible listing of BeerCo in the future may be another catalyst. But i will keep my fingers crossed for now.

As for the political unrest in Thailand, I don’t think it is something new. In the past, the country has always emerged from such issues and I do not think that the government would want to crash the local economy too. Of course, these issues will not be solved overnight but over time.

As for the Myanmar political turmoil, ThaiBev do not derived a substantial amount of revenue from that market.

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Current Brokers’ 12-months Target Price

UOBKH – $0.92

Kim Eng – $0.99 (previously $0.95, revised on the 17th of May 2021)

CGS CIMB – $0.84

DBS – $0.93 (previously $0.90, revised on the 26th of November 2020)

ThaiBev Technical Analysis

Daily Chart of ThaiBev

Since the 12th of May, the price has broken below the 200 days MA and hovered very closely to it. In the last 2 sessions, it seems that the price is attempting to go back above the 200 days MA which will be a positive price action if it crosses above it in the next few sessions.

Fibonacci retracement of 50% stands at the price of $0.7113 which is another level to watch.

MACD is emerging below the baseline, looking to diverge. If we are to see a upswing in price in the next few sessions, the divergence will be more obvious.

RSI is pretty neutral at 48 but its ascending higher.

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Overall, the chart is slightly positive, around the 60% conviction. Support at 38.2% retracement level of $0.6619. As of writing, ThaiBev share closed at 69 cents today.

As of writing, I do hold ThaiBev shares and as such, my opinions may be biased. This article is purely for informational purposes ONLY and should not be taken as a solicitation to purchase ThaiBev shares. Please consult your financial advisor as the above may not fit into your investment objectives.

Please read Disclaimer