Potential regulatory reforms-driven share price weakness priced in, CGS-CIMB keeps 'add' on ThaiBev

ThaiBev sees potential areas of growth depending on the scope of the reform.

CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan are keeping “add” on Thai Beverage (ThaiBev) Y92 with a target price of 88 cents following an analysts briefing the company hosted on July 12.

At the briefing, ThaiBev notes potential regulatory reforms on the back of Move Forward Party’s (MPF) plan to drive liberalisation in the liquor industry. The analysts highlight that ThaiBev believes it would be able to navigate the new regulatory regime well, given its experience and sector expertise. They also add that the current political environment could limit the pace and scope of a reform.

Depending on the scope of the reform, ThaiBev sees potential areas of growth from the relaxation of the government’s strict rules regarding alcohol sales hours, online sales and advertising control as well as the ability to monetise its strong distribution channel by catering to brands that complement its existing product portfolio.

Meanwhile, the key area of concern for ThaiBev is the proposed implementation of a tiered excise tax depending on the corporate size, which the company believes is discriminatory.

To this end, Ong and Tan think that the near-term share price weakness has priced in concerns over MFP’s potential regulatory reforms. “We see potential for positive moves should our Thai strategist’s view that the Pheu Thai Party forms the new government come true,” they add.

The analysts continue to like ThaiBev as a proxy for Thailand’s economic recovery, riding on a resurgence in tourism and improving consumer sentiment.

At the briefing, ThaiBev had also reiterated its plans for an eventual BeerCo IPO. However, the company acknowledged that this is unlike to happen in 2023 given the current market conditions.

Viewing this exercise as a strategic step for its longer-term vision, ThaiBev believe the IPO would provide BeerCo with an avenue to bring in strategic partners and anchor investors to tap into its unique Asean proposition, given its strong beer market share position in both Thailand and Vietnam. The company also has the potential to fetch higher valuations versus ThaiBev via a price discovery process and thereby creating value for shareholders.

The analysts note that ThaiBev is confident in achieving market leadership in the Thailand beer industry within the next three years as its share gap with the market leader has narrowed to less than 5% in recent months.

“ThaiBev 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, ThaiBev sees macro weakness negatively impacting volumes, the analysts point out. However, it views consumers’ downtrading to mainstream beer segments as a cushioning factor. “Its focus remains on driving further cost savings and ring fencing of advertising and promotion spend to protect profits,” the analysts add.

As at 10.55am, shares in ThaiBev are trading 1 cent higher or 1.77% up at 57.5 cents.

 

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