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Looking for happier hours

■ Consumption recovery in sight with easing lockdown measures in operating geographies and potential stimulus measures in Thailand.
■ Lockdown impact may be limited as Thai alcohol sales remained resilient in Jul 21. THBEV is also adopting cost control measures to protect margins.
■ Reiterate Add and TP of S$0.84. Valuation undemanding at 14.6x CY22F P/E, 1.1 s.d. below historical mean and at a 47% discount vs. regional peers.

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Reiterate Add on attractive valuation and improving risk-reward

Reiterate Add. We believe THBEV’s risk-reward profile is improving with easing lockdown measures in Thailand and Vietnam, which could aid consumption recovery in 1QFY9/22F. THBEV trades at an undemanding valuation of 14.6x CY22F P/E (1.1 s.d. below its 10-year historical mean), below regional peers’ 27.8x. We believe the current valuation has more than priced in near-term headwinds. Our SOP TP of S$0.84 implies 19.0x CY22F P/E (0.5 s.d. above 10-year historical mean). Potential catalysts include
new stimulus measures to support consumer purchasing power in Thailand and better cost control. Resumption of BeerCo IPO plans could also be a medium-term catalyst, in our view. Downside risks include prolonged lockdowns in Vietnam and Thailand.

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Thai volumes resilient in Jul 21; Vietnam volumes slowed

Industry data suggests resiliency in Thai alcohol consumption despite stepped-up lockdown measures in Jul, as domestic sales volume of both liquor and beer showed 2 consecutive months of mom improvement. According to Thailand’s Office of Industrial Economics, both domestic liquor and beer consumption returned to pre-Covid levels in Jul, although sales volumes were weaker on a yoy basis (liquor: -10%; beer: -21%), likely due to pent-up demand resulting in high comparison base last year. Vietnam’s beer consumption was harder hit, with industrial volumes down 32% yoy in Aug. We maintain
our view that THBEV should be relatively resilient vs. peers, given: 1) its strong presence in off-trade channels, and 2) it being a potential beneficiary of down-trading, with its positioning as a mass player for beers in Thailand and Vietnam.

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Prudent cost controls to tide through near-term headwinds

We forecast THBEV achieving an EBITDA margin expansion to 18.7% for FY21F (FY20: 17.5%), as it adopts prudent cost controls to tide through the near-term headwinds. We believe THBEV has been spending less on advertising given the lower social mobility and has instead focused on improving its distribution channels to drive sales. Overall, we forecast 6.6% core net profit growth in 2HFY21F.

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Consumption recovery in sight

Both Thailand and Vietnam have announced plans to reopen their economies in Sep, as the focus shifts to adapting to and living with Covid-19. As daily new cases in both countries show a downward trajectory, this could allow for further easing of restrictions and support consumption recovery, in our view. On Mon, the Thai government also raised the public debt-to-GDP ratio ceiling to 70% (from 60%); we think more stimulus measures could be announced to boost domestic consumption and help the economy.