1Q24 Business Update: Decent start with sequential improvement expected
- ThaiBev posted 1Q24 revenue and EBITDA -5.9%/1.9% within estimates given expectations of stronger 2H24
- Thailand business continues to be resilient despite growth slowdown headwinds with likely margin expansion in Beer segment and stable Spirits segment
- Expect a stronger 2H24 on tourism recovery in Thailand and manufacturing recovery in Vietnam; Maintain BUY with TP of S$0.72
What’s new
ThaiBev 1Q24 revenue and EBITDA -5.9%/ +1.9% – largely within, given expectations of sequential improvement. ThaiBev reported in its 1Q24 business update that revenue and EBITDA was THB76.1bn and THB13.8bn, respectively, forming 26%/ 29% of our FY24F estimates. This is within our expectation on account of 1Q being the strongest quarter. Group sales revenue declined by -5.9% y-o-y, mainly on the back of 14% drop in Beer segment revenue mitigated partially by contribution from Spirits (+0.5% y-o-y), Non-Alcoholic Beverages (+1.6%) and Food (+5.9%). Group EBITDA grew by 1.9% y-o-y, with all segments posting positive growth. Of note, Beer segment posted positive EBITDA growth of 2.1% y-o-y despite a drop in revenue, which was attributed to lower raw material and packaging costs, and cost management.
Maintain BUY, TP at S$0.72. ThaiBev’s share price is trading at its COVID low in March 2020, despite FY23 profits being 18% above pre-COVID levels. Valuation looks compelling at 11.3x PE on FY24F earnings as we see the company’s topline and bottomline growing by 5.8%/5.7% and 9.9%/8.0% in FY24F/25F respectively from a low base in FY23 due to the weak economy. We expect to see sequential y-o-y improvement in its revenue and profits on the back of improving macroeconomic conditions in Thailand and Vietnam. Our TP implies 15.9x PE, which represents ThaiBev’s average 15- year historical 12-month forward PE.
Other salient points
Beer impacted by slow recovery, but Thailand beer seems to show better margins. The Group’s Beer segment saw volumes declining by 15%, while sales revenue dipped by a smaller 14% to THB32.6bn, mitigated by price adjustments. Note that last year, Vietnam had a high base from stocking up in preparation for Tet, and there was more cautiousness this year post a slower economy resulting in overstock issues in the industry for most part of 2023. The positive EBITDA growth from Beer segment was a pleasant surprise despite the contraction in revenue and our read through from Sabeco’s results. Sabeco had reported a 15% y-o-y decline in revenue and 7.8% dip in EBITDA for the quarter ending 31 Dec 2023. As such, this suggests that its Beer business in Thailand saw robust EBITDA margin expansion.
Spirits segment remained resilient, with robust performance from Myanmar. ThaiBev’s Spirit segment saw a 0.5% increase in revenue to THB33.9bn, on the back of 1.4% drop in sales volume. It was reported that despite the challenging operating environment, its spirit business in Myanmar saw increases in both sales revenue and EBITDA.
Financial position improves further; THB22bn debentures issued. The Group’s net debt to equity remained at 0.65x as of 31 Dec 2023, similar to a quarter ago. However, Net Debt to EBITDA improved marginally to 2.98x on 31 Dec, from 3.08x (30 Sep) on improved net debt position (THB151bn in Dec-23 vs THB157bn in Sep-23) while LTM EBITDA was flattish y-o-y. On 7 Feb 2024, ThaiBev issued THB22bn worth of debentures with an average tenor of 4.96 years and an average interest rate of 3.27% to repay existing debts, primarily for the two upcoming debentures due March 2024 (THB 11.3bn) and April 2024 (THB 8bn) with average interest rate of 2.55%. This continues to reaffirm our view that deleveraging continues, and the Group would have no issues in refinancing its loans and debentures as and when they come due with new issues and internally generated cashflow.
Expect to see a stronger 2H24 for both Thailand and Vietnam business. Thailand expects visitor arrivals to hit 34.5m in 2024, 86% of pre-pandemic, up from 70% in 2023. Based on Jan-24 visitor/tourist arrival data to Suvarnabhumi Airport (Thailand’s busiest airport, located in Bangkok), visitor arrivals have reached 85% of 2019 level, an early positive indication of meeting and even surpassing the 34.5m tourist arrivals target. We believe the continued tourism recovery should spur the local economy and further lift consumption. On Vietnam, we see potential volume recovery towards the later half of the year with gradual global demand recovery of smartphones reviving Vietnam’s manufacturing sector.
Source: Company, DBS Bank