Thai Beverage Public Company Limited - Does it need to reinvent its non-alcoholic beverage business model?

8/9/2014 – Thai Beverage PCL says the return of consumer and business confidence as a result of political clarity for Thailand has helped the country's overall economy, though spending is still conservative.

Tourism returned but only toward the middle of June, near the end of the quarter.

Earnings remained resilient as a result of the company's diversified portfolio, it says, with the exception of its non-alcoholic beverage business.

The non-alcoholic beverage business has slowed because consumers drank less of their products in pubs, cafes and restaurants (so-called on-premise consumption) and competitors have become more aggressive to grab market share.

The company just announced earnings for Q2FY14:

Revenue: +9% to THB40.02 bln
Profit: +12% to THB5.52 bln
Cash flow from operations: THB11.11 bln vs THB8.01 bln
Dividend: 0.15 cents per share vs 0.14 cents per share
Order book: Not disclosed

Revenue climbed to THB40.02 bln from THB36.83 bln because of improvements in spirits, beers, and food sales.

Profit climbed 12% to THB5.52 bln because spirits and beer had improved performance, partially dragged by losses in the non-alcoholic beverage and food businesses.

Credit rating agency TRIS Rating Co., Ltd has left its credit rating for the company at "AA-" with outlook stable.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Does it need to reinvent its non-alcoholic beverage business model?

Revenue from non-alcoholic beverages dropped to THB4.4 mln compared to THB4.9 mln in the previous quarter.

Net profit from this business, excluding Fraser & Neave (F&N)/Frasers Centrepoint Limited (FCL) results, dropped to (THB374 mln) from (THB430 mln) previously.

So we see Thai Beverage is still underperforming in the non-alcoholic business for its Chang line of water and carbonated soft drinks where profit is still negative though improved.

F&N's portfolio of non-alcoholic beverages include 100Plus isotonic drinks, teas, soya milks, cow's milks, carbonated soft drinks, fruit juices, yoghurts and drinking water.

F&N's Q3FY14 results on page 3 show for earnings:

Beverages
Revenue: $257.8 mln vs $227.7 mln
Attributable Profit: $23.3 mln vs $14.2 mln

Dairies
Revenue: $280.4 mln vs $272.2 mln
Attributable Profit: $7 mln vs $7.6 mln

Sermsuk PLC Q2FY14 results:

Revenue: THB2.96 bln vs THB3.45 bln
Profit/(Loss) for the Period: (THB161.3 mln) vs (THB78.9 mln)

So Sermsuk's revenue went down and so did profit being still in the negative, only worse.

Oishi Group PLCQ2FY14 results:

Revenue: THB1.45 bln vs THB1.48 bln
Profit/(Loss) for the Period: THB34.2 mln vs THB15.4 mln

Oishi Group's revenue dipped slightly but profit doubled.

Question

2. Will it streamline the Chang brand to exclude non-alcoholic beverages now?

The Group product portfolio in the 2013 Annual Report shows product duplication.

Chang has carbonated soft drinks and drinking water, but so does F&N.

It could be a helpful strategy to sell one product in various ways but since the numbers are not healthy, could ThaiBev now consider streamlining its Chang line to just focus on alcoholic beverages?

ThaiBev has been on an acquisitions programme since listing on the Singapore Stock Exchange in 2006.

It acquired 89.9% control of Oishi in 2008 and 64.66% of Sermsuk in 2011.

This corporate history page gives the specifics and progress.

Total number of questions in the full story: 9)

We have invited the company to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do.

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