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SG: Thai Beverage Public Company (THBEV SP): Last chance to buy the dip? (BUY)

  • FY21 financials in line, net profit up c.6% y-o-y on lower promotion expense
  • Sales volumes to recover as vaccination rates in Thailand and Vietnam rise
  • Advertising spend likely to normalise but remains lower than pre-COVID level
  • Maintain BUY with TP of S$0.92
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Investment Thesis:

Region’s leading player trading at -1SD of mean forward PE. Thai Beverage Public Company (THBEV) is transforming into the region’s leading beverage player and has gained market share in its key markets of Thailand and Vietnam. Its valuation is attractive at c.14.5x FY22F price-to-earnings (PE), which is -1SD from its mean forward average.

Cost control measures starting to bear fruit.
 While we are forecasting advertising spend to rise in the near term as the reopening pace quickens, we think THBEV’s cost control and productivity initiatives implemented during the pandemic could help maintain costs below pre-COVID levels and have forecasted FY22F operating margin of 13.7%.

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Refinancing risks are low; strong cashflow to deleverage. THBEV has secured a Bt40bn credit line for refinancing, thus removing any concerns in this area. Continued deleveraging from its strong and stable cashflow, as well as potential monetisation of assets, are key re-rating catalysts.

Valuation:
Our target price (TP) is based on sum-of-the-parts (SOTP), with core operations valued using discounted cash flow (DCF) and market values/target prices of associate stakes. THBEV is trading at c.14.6x FY22F PE which is around the -1SD from the mean. We believe this is not pricing in its potential as Southeast Asia’s largest F&B player.

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Where we differ:

High gearing mitigated by strong operating cash flow (OCF). THBEV’s high gearing should not pose any issues as management has termed out the company’s loans and is able to repay/refinance its obligations with strong cashflows.

Key Risks to Our View:

New COVID-19 variant, unexpectedly high excise taxes, aggressive sales promotions by competitors.

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