Recovery On Track After COVID-19 Peak
THBEV held a virtual annual information meeting for shareholders in Singapore, sharing updates on its operations in Thailand and Vietnam. Despite facing stiff competition, the beer business is gaining market share in both core markets. THBEV is exploring possible ASP increases in the following 12 months due to rising operating costs from inflation. Also, rising interest rates and a weakening Thai baht have minimal impact on the group. Maintain BUY with a slightly lower SOTP-based target price of S$0.87.
• Recovery underway. With increased social activity due to the removal of most COVID-19 measures, Thai Beverage (THBEV) expects consumption of both alcoholic and non-alcoholic beverages to improve, in line with our expectations. Nightlife entertainment venues such as bars and nightclubs have reopened while international tourist arrivals have been improving. Resumption of dine-in restaurants has also led a recovery to the group’s food business.
• Fighting to be number one. THBEV’s beer businesses are gaining market share in both Thailand and Vietnam, driven by increased advertising and promotional activities. In Thailand, THBEV has the second largest market share at around 40% (similar to 3QFY22), closing in on the number one spot. It was noted that the market share gap has been closing and is at the narrowest in 13 years. This is largely due to improved quality coverage over the domestic market, backed by a robust and efficient route-to-market strategy. For Vietnam, second-placed Sabeco faces strong competition from its nearest competitor. As Vietnam’s economic activities continue to recover, management expects Sabeco to outperform moving into 4QFY22 and beyond, catching up to its closest competitor.
• Possible additional ASP hikes. Facing record-high inflation, THBEV has increased ASPs twice for both its beer and white spirits respectively since 1QFY22. To combat rising inflation, management noted that the group is exploring adjusting its ASPs higher for its alcoholic beverages moving forward in the next 12 months and believes that there will not be negative pushback from the group’s customers. In our view, ASP hikes for THBEV’s white spirits seem more likely than for its beer products, given falling operating margins for its spirits segments in the last two quarters. Assuming a 3-4% increase in spirits ASPs in 1QFY23, this would boost our FY23 annual revenue forecasts by around 2%. To offset higher import costs due to the sharp depreciation of the Myanmar Kyat, the group also plans to lift ASPs for its international spirits business (around 10% of total spirits revenue) in Myanmar as well.