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Cheers to a better year ahead

■ THBEV’s 2HFY9/21 core net profit fell 6% yoy, below expectations, as alcohol sales were weaker than expected with lockdowns in TH and VN.
■ Three key positives: 1) good demand recovery seen as economy reopens, 2) price hikes are coming and 3) BeerCo IPO plan is back on the table.
■ Reiterate Add; THBEV is our sector top pick as we believe it is a laggard recovery play. Our TP is raised to S$0.91 on valuation rollover.

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2HFY9/21 hurt by lockdowns

THBEV’s 2H21 core net profit fell 6% yoy to THB10.2bn, mainly due to weaker alcohol sales due to strict Covid restrictions in both Thailand and Vietnam over the past quarter. FY21 core net profit of THB24.6bn (-3% yoy) came in weaker than expectations at 95%/93% of our/Bloomberg consensus forecasts. THBEV declared full-year dividend of THB0.50/share, representing an unchanged dividend payout ratio of 50%.

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Good demand recovery with easing restrictions

Management is cautiously optimistic on the recovery outlook. In Thailand, THBEV has observed good demand recovery with the easing of social restrictions since Sep; we expect further improvement with the government’s plan to allow the reopening of pubs, bars and karaoke by 16 Jan 2022. In Vietnam, measures are also progressively easing as the country adapts to living with Covid. Despite another recent spike in Covid cases there, we believe control measures will be more targeted given the higher vaccination rate.

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Price hikes to come

As demand recovers, THBEV has started to roll out price hikes from 1QFY22F. This will be rolled out over the next two quarters, in a prudent manner to minimise the impact on volumes. Selected SKUs in the white spirit portfolio have seen price adjustments since Oct, and there are plans to raise prices for the Vietnam beer portfolio in Dec. Meanwhile, we expect continued prudent cost management. THBEV has forward buying in place to manage raw material costs; rising packaging costs are also being mitigated by measures to encourage a higher recycling rate of bottles.

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Refreshing BeerCo IPO dreams; reiterate Add

During the analyst briefing, THBEV also announced it will resume its BeerCo IPO plans (previously shelved in Apr 2021 due to the worsening pandemic). A successful listing for the beer unit could help pare down THBEV’s gearing level, and potentially unlock value for shareholders, in our view. Reiterate Add; THBEV is our sector top pick as we believe it is a laggard recovery play – it trades at an undemanding valuation of 14.4x CY22F P/E (1.2 s.d. below its 10-year historical mean), below regional peers’ 28.0x. Our SOP-based TP is raised to S$0.91 as we roll forward our valuation to end-2022F. We raise FY22-23F EPS due to higher margin assumptions. Upside risks include stronger volume recovery and successful BeerCo listing. Downside risks include worse-than-expected cost pressure.

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