In his report dated May 15, UOB Kay Hian’s Llelleythan Tan says that ThaiBev’s 1HFY2023 core patmi of THB16.1 billion ($634.7 million) came in slightly above expectations, forming 61.4% of his full-year forecasts, despite a slight dip of 1.2% y-o-y and industry headwinds of compressing demand and margins.

According to Tan, the better-than-expected performance was largely due to a smaller-than-expected drop in margins, while the ongoing recovery in brown spirits has led to positive 1HFY2023 ebitda growth for ThaiBev.

He says that ThaiBev posted stable overall revenue growth of 3.7% y-o-y, forming 53.6% of his full-year forecasts and in line with expectations. “The revenue growth was backed by higher 1HFY2023 revenue contributions from the brown spirits, beer, non-alcoholic beverage (NAB) and food segments,” explains the analyst.

ThaiBev’s better-than-expected earnings performance was due to lower contributions to non-controlling interests (NCI) and lower interest expenses. The drop in 1HFY2023 patmi was in line with ebitda as margins compress, says Tan.

However, the company’s 1HFY2023 overall core ebitda softened by 3.9% y-o-y, dragged by higher inflationary costs and increased selling, general, and administrative expenses (SG&A).

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In 2QFY2023 alone, revenue and ebitda fell by 7.3% and 16.1% y-o-y, respectively, largely led by lower beer sales volumes from Vietnam. Tan notes that the drop in ebitda during the period was offset by the price adjustment and improvements in production efficiency, cushioning 2QFY2023 ebitda margins.

“Moving forward, we reckon that the return of Chinese tourists to Vietnam in 3QFY2023 along with Thailand’s elections in 2HFY2023 would boost beer consumption levels,” he says.

Tan has raised his FY2023 to FY2025 patmi estimates by around 9% to 10%, after accounting for higher patmi assumptions, lower interest expense and contributions to NCI.

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“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,” says the analyst, whose target price of 75 cents is based on a sum-of-the-parts (SOTP) valuation.

In his view, ThaiBev remains attractively priced at 1.5 standard deviations below its long-term average price-to-earnings ratio (P/E), and remains backed by favourable tailwinds.

Meanwhile, CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan say they are “cautiously optimistic” on ThaiBev’s topline outlook. The company’s 1HFY2023 patmi came in slightly ahead of their full-year forecast at 51%.

They are forecasting revenue growth of 7.1% in 2HFY2023 as brown spirits saw strong recovery momentum with double-digit volume growth in 1HFY2023 following the resumption of on-trade, adding that ThaiBev is currently working on further price adjustments.

“While beer industry volume recovery in Thailand was rather bumpy, ThaiBev notes that it has been closing the market share gap compared to Leo over the past two quarters after a sales team revamp to improve collaboration across product groups,” they say.

Additionally, the higher input costs for molasses and malt have already been reflected in the company’s 2QFY2023 results. “We think input cost pressure could taper in coming quarters, with current stock of higher priced barley for beer production depleting. Aluminium prices have also eased while the recent sugar harvest in Thailand points to stable molasses output for spirits production,” explain Ong and Tan.

They note that ThaiBev is actively working on improving the efficiency of its marketing spending, and said that SG&A spending as percentage of revenue in 2HFY2023 will not surpass 1HFY2023 levels. “Ringfences are also in place to protect profitability should topline growth disappoint.”

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The CGS-CIMB analysts have kept their SOTP-based target price of 88 cents for ThaiBev, which they continue to favour as a proxy for Thailand’s economic recovery riding on tourism recovery, and improving consumer sentiment.

Their potential re-rating catalysts include stronger-than-expected margin improvement, while downside risks include weaker macroeconomic environment dampening volume and higher-than-expected SG&A spending dampening margins.

As at 1.53pm shares in ThaiBev were trading 0.5 cents or 0.84% down at 59 cents.

Analysts positive on ThaiBev after 1HFY2023 results beat expectations

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