1QFY22: Solid Results; Recovery Has Just Started
THBEV released its 1QFY22 results, with revenue and EBITDA in line with our expectations. This was driven by a stronger-than-expected recovery in the beer and food segments. The spirits segment posted strong revenue growth but was dragged down by rising material costs. We opine that THBEV is an attractive and undervalued COVID-19 recovery play with high potential upside. Maintain BUY with a higher SOTPbased target price of S$0.90 (previously S$0.85).
RESULTS
• 1QFY22 results in line with expectations. Thai Beverage (THBEV) provided its 1QFY22 business update, with 1QFY22 revenue and EBITDA growing 7.4% yoy and 1.6% yoy respectively, forming 31.1% and 34.3% of our FY22 full-year forecasts. THBEV’s 1Q is historically the seasonally strongest quarter. The robust yoy growth in revenue was largely driven by all segments as key markets recovered from an improving COVID-19 situation and sales volumes improve. 1QFY22 EBITDA was slightly above expectations but was still dragged down by a yoy drop from the spirits segment. THBEV’s balance sheet continues to improve with net debt dropping 19.8Btb to 161.2Btb.
• Spirits: Dragged down by rising costs. Spirits volume grew strongly (+8.6% yoy, +47.5% qoq), backed by its off-premise consumption nature and strong portfolio. We reckon this was also helped by the reopening of international borders from Nov 21. Spirits revenue increased (+3.6% yoy), just missing our 4-5% yoy growth forecasts and forming 30.1% of our FY22 forecasts. However, rising material costs from molasses caused 1QFY22 spirits EBITDA to drop 2.3% yoy, forming only 29.7% of our full-year estimates.
Management expects the cost of molasses for the rest of the current season to be lower yoy. To combat rising material costs, we opine that the group may execute its plan to increase ASPs for its white spirits in 2QFY22.
• Beer: Excellent recovery. Beer sales volume (+1.1% yoy, +75.3% qoq) grew, driven by a recovery in its key market, Vietnam. Beating expectations, beer revenue and EBITDA surged 10.4% yoy and 4.5% yoy, forming 32.7% and 38.4% of our full-year forecasts. This was largely contributed by a recovery in economic activity from Vietnam and an unexpected ASP hike. We reckon that the robust yoy growth was coming off a low base as bars and entertainment venues were shut then. 1QFY22 revenue and EBITDA have already surpassed pre-COVID-19 levels in 1QFY20, with revenue and EBITDA growing 0.4% yoy and 38.5% yoy respectively. With Vietnam and Thailand reopening their international borders and easing more social restrictions, THBEV’s beer segment is set to outperform from 2QFY22 onwards.
• Food: More hungry diners. For the food segment, 1QFY22 outperformed as dine-in traffic returned to restaurants and is expected to improve further moving forward. Food revenue and EBITDA grew 21.0% yoy and 35.6% yoy respectively, forming 29.2% and 52.5% of our full-year forecasts and exceeding expectations. We now expect the food segment to post a positive net profit for FY22 on the back of easing restrictions.
• Non-alcoholic beverages: Cost efficient. For the non-alcoholic beverages, revenue and EBITDA grew 7.6% yoy and 20.2% yoy respectively, as sales volume increased 2.3% yoy. This was in line with expectations as both formed 28% of our full-year expectations. The larger surge in EBITDA was due to THBEV’s effective cost control measures.
STOCK IMPACT
• Vietnam to welcome tourists. From 15 Feb 22, Vietnam will remove its quick test requirements and lift all restrictions on international flights, restoring flight frequency to prepandemic levels. Fully vaccinated tourists only need to self-quarantine for three days, taking two PCR tests on the third and seventh day, while business travellers staying for 14 days or lesser do not need to quarantine. With higher expected tourist arrivals, we expect THBEV’s Vietnam beer consumption levels to improve. Vietnam contributes around 45% and 70% of THBEV’s beer segment revenue and net profit respectively. An expected full international reopening sometime in 2HFY22 would help boost consumption levels and overall earnings
moving forward.
EARNINGS REVISION/RISK
• Raise FY22-24 earnings by 2.8%, 3.9% and 5.0% respectively, after accounting for better sales volume and margin assumptions for the both the food and beer segments.
VALUATION/RECOMMENDATION
• Maintain BUY a higher SOTP-based target price of S$0.90 (up from S$0.85). The higher target price is due to higher FY22 beer and food EBITDA. We opine that THBEV remains attractively priced at below -1SD to its average 5Y mean PE, backed by an expected earnings recovery underpinned by favourable tailwinds. THBEV’s potential 3Q/4QFY22 IPO of its beer business may also unlock value for the group.
• Conservatively, we value the beer business at roughly US$5b (13X FY22 EBITDA), dwarfed by similar competitors such as Tsingtao Brewery Company (US$16b), Budweiser Brewing Company APAC (US$35b) and Asahi Group Holdings (US$21b).
SHARE PRICE CATALYST
• M&As.
• Potential spin-off listing of its beer business.
• Full reopening of bars in Vietnam and Thailand.