Ready for what comes next
- At its analyst briefing today, THBEV said that it is prepared for any potential liberalisation of the liquor industry in a post-election Thailand.
- THBEV reiterated its plans for an eventual BeerCo IPO. In the meantime, it is continuing to strive for market leadership in Thailand’s beer market.
- Reiterate Add and TP of S$0.88. We believe the near-term share price weakness has priced in concerns over MFP’s potential regulatory reforms.
Prepared for potential liberalisation of Thai liquor industry
? On potential regulatory reforms in Thailand (with Move Forward Party [MFP] looking to drive liberalisation in the liquor industry), Thai Beverage (THBEV) believes that it will be able to navigate the new regulatory regime well, given its experience and sector expertise. It also noted that the current political environment could limit the pace and scope of reform.
? Depending on the scope of reform, THBEV sees potential areas of growth from: 1) relaxation of the government’s strict rules regarding alcohol sales hours, online sales, and advertising control; and 2) ability to monetise its strong distribution channel by catering to brands that complement its existing product portfolio.
? The key area of concern for THBEV is the proposed implementation of a tiered excise tax depending on corporate size, which the company believes is discriminatory.
Plans for eventual BeerCo IPO remain intact
? THBEV reiterated its plans for an eventual BeerCo IPO but acknowledged that this is unlikely in 2023F, given the current market conditions.
? THBEV views this exercise as a strategic step for its longer-term vision. This will provide BeerCo an avenue to bring in strategic partners and/or anchor investors to tap into its unique ASEAN proposition, given the company’s strong beer market share position in both Thailand and Vietnam, with the potential of fetching higher valuations vs. THBEV via a price discovery process and thereby creating value for shareholders.
Confident of achieving market leadership in Thailand’s beer market
? THBEV is confident of achieving market leadership in the Thailand beer industry within the next 3 years, as its share gap with the market leader has narrowed to less than 5% in recent months. THBEV has deepened engagement across its value chain in recent years, especially with retailers — this includes aiding mum-and-pop stores to improve their merchandising strategy, being embedded in retailers’ point-of-sale terminals to improve visibility of sell-through, or even providing financial support.
? In Vietnam, THBEV sees macro weakness negatively impacting volumes, but it views consumers’ downtrading to mainstream beer segments as a cushioning factor. Its focus remains on driving further cost savings and ringfencing of advertising and promotion spend to protect profits.
? Reiterate Add and SOP-based TP of S$0.88. We continue to like THBEV as a proxy for Thailand’s economic recovery, riding on a resurgence in tourism and improving consumer sentiment. We believe the near-term share price weakness has priced in concerns over MFP’s potential regulatory reforms and see potential for positive moves should our Thai strategist’s view that the Pheu Thai Party forms the new government come true. Re-rating catalysts include better-than-expected margins on prudent cost control and productivity improvements. Downside risks include a weaker macroeconomic environment dampening volumes, or higher-than-expected SG&A spend dampening margins.