Analysts keep 'buy' on ThaiBev in anticipation of a consumption recovery; RHB lowers TP to 87 cents

ThaiBev is expected to benefit from Thailand’s economic recovery and the return of tourists from Vietnam and China: analysts

Analysts from RHB Bank Singapore and UOB Kay Hian (UOBKH) are remaining positive on Thai Beverage Y92 (ThaiBev) in anticipation of a recovery in consumption, and have maintained their “buy” calls. The food and beverage (F&B) group is expected to benefit from Thailand’s economic recovery as well as the return of tourists from Vietnam and China.

UOBKH’s Llelleythan Tan and Heidi Mo have set an unchanged target price of 75 cents, citing “favourable tailwinds” and an anticipated strong market dominance after the recent Thai elections.

Noting that Thailand saw a slight dip in tourist arrivals of 2.18 million in April 2023 which is about 71.5% of pre-Covid-19 levels, Tan and Mo say that this was due to seasonal factors after the holiday season. They highlight that Chinese tourist arrivals to Thailand continued sharp recovery, surfing 21.7% m-o-m and 36.7x y-o-y in the same month.

“We opine that the elevated tourist arrivals may help boost and support domestic alcohol consumption levels. We expect 28 million to 30 million tourist arrivals in 2023, roughly 70% to 75% of the 40 million arrivals pre-pandemic.” they add.

Additionally, with the Move Forward Party’s (MFP) win in the recent Thailand elections, the analysts expect to see an upcoming deregulation to Thailand’s domestic beer market, which is dominated by ThaiBev and its closest competitor, Boon Rawd Brewery, both commanding a total 90% to 95% of market share.

With the anticipated deregulation in the near-to-medium term, Tan and Mo say that ThaiBev is expected to lose some market share, but will unlikely have any significant negative impact.

“Despite falling margins and short-term inflationary pain in FY2023, we reckon that these issues have already been priced in. We expect operating costs to stabilise by 4QFY2023, leading to margin expansion in 1HFY2024.” the analysts say. “In our view, ThaiBev remains attractively priced at -2 standard deviation to its long term average mean P/E, backed by favourable tailwinds. The recent share price weakness from MFP’s electoral win presents an attractive entry level for investors.”

However, as ThaiBev’s earnings for 1HFY2023 ended in March were “a tad below”, RHB’s analyst Alfie Yeo has lowered his target price to 87 cents from 91 cents previously.

The group’s 1HFY2023 earnings came in at THB16 billion ($615 million) on the back of THB148 billion revenue (+4% y-o-y), says Yeo. Revenue growth stemmed from beer, non-alcoholic beverages, and food segments, at THB64 billion, THB9 billion and THB9 billion respectively.

Meanwhile, the spirits segment was flat at THB65 billion, as sales volume decline was offset by the price adjustment and higher brown spirits sales mix.

While gross profit rose by 0.3 percentage points (ppts) to 29.3% due to the price increase and better product mix in the spirits segment, operating margin declined 1.6 ppts to 13.3% from higher brand investment and marketing activities, mainly from the beer segment, Yeo adds.

As such, Yeo tweaks his earning forecasts to account for the slightly weaker-than-expected 1HFY2023, noting that gross and operating profit margins slightly trailed his estimates.

“As such, we cut our FY2023 sales by 4%, with gross and operating margins lowered to 29.9% (-0.5 ppt) and 13.8% (-0.4 ppt). Our sum of the parts (SOTP)-based TP is therefore reduced by 4% to 87 cents, implying a blended FY2023-FY2024 P/E of 17.3x, slightly below mean.” Yeo says.

As at 12.02pm, shares in ThaiBev are trading at 0.01 cent lower or 1.75% down at 56 cents.

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