In their report, the DBS analysts note that for its 3QFY2023 ended June 30, ThaiBev posted revenue and ebitda that was up 4% and down 2.4% y-o-y, respectively, as its business in Thailand remained strong thanks to resilient spirits margins and growth in beer sales during the period.

For 3QFY2023, ThaiBev’s spirits segment continued to do well, with sales and ebitda growing 12% and 13.7% y-o-y, respectively. “We believe this is likely on the back of Thailand tourism recovery and reopening of bars post lifting of Covid-19 restrictions, which improved the sales mix in terms of higher brown spirits mix,” they say.

While they acknowledge that the current political uncertainties could potentially lead to protests which will hamper the Thai economy, they believe Thailand consumers on the ground remain optimistic. “We see consumer confidence improve sequentially. In addition, the company’s strong Thailand performance is indicative of a strong economy with consumers spending on discretionary goods like spirits and beer.”

“With tourism expected to see sequential recovery, we believe Thailand's economy should continue to strengthen from here, which will benefit alco-beverage consumption,” they add.

For the company’s beer segment, which has already “starred” so far this year, the analysts believe it has shown relative stability during the period, given that its y-o-y decline of 5.9% and 24.1% for 3QFY2023 sales and ebitda, respectively, was smaller than that reported by Vietnamese subsidiary Sabeco, which posted a y-o-y slump of 7.7% and 38.6% in sales and ebitda, respectively.

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They point out that ThaiBev’s weak Vietnam business, which continues to face macro challenges, continues to be a drag on its profitability. The analysts add that Sabeco’s key competitor Heineken also reported a 25% decline in volume in Vietnam for its 1HFY2023 ended June, further highlighting the weakness in the Vietnam beer industry. “From the readthrough of Sabeco’s 2QFY2023 ended June results, Vietnam continues to suffer from poor macroeconomic conditions due to weak global demand for jobs, leading to unemployment and lower disposable income for beer consumption,” they explain.

However, they expect to see a recovery towards 2HFY2024 and note that given the “mainstream positioning” of its beer portfolio, they believe Sabeco could have gained market share in the quarter from Heineken. A sensitivity analysis of weakness in Sabeco has indicated limited downside to DBS’ FY2023 forecasts. The analysts estimate that ThaiBev’s Vietnam business accounts for 23% and 13% of their FY2023 revenue and earnings forecasts, which “pales in comparison” to its core Thailand business.

And although Vietnam continues to face significant macroeconomic pressure, the overall long-term growth prospects for the country remain positive, according to them. “With the ongoing trade tensions between China and USA, and previous experiences of supply disruptions due to overreliance on China, companies remain keen to diversify their supply chains outside of China. As global consumer demand starts picking up, we believe Vietnam will be a key beneficiary of supply chain diversification efforts, which will create employment, increase disposable income and boost beer consumption.”

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Factoring in a more significant decline of its Vietnam business compared to their initial estimates has indicated 5.2% and 3.6% lower revenue and earnings, respectively. “Given the better-than-expected performance of the Thailand business, we expect the company will remain on track to achieve our earnings estimates,” say the DBS analysts.

“Overall, we believe the market has been overly pessimistic on this counter due to the political overhang in Thailand and weakness in Vietnam business, while neglecting the data points which are pointing to strength in Thailand's economy and the long-term prospects of Vietnam,” they add.

With ThaiBev’s valuation at 12.8x its FY2023 price-to-earnings ratio (P/E), 1 standard deviation (s.d.) below its five-year average, they believe “the reward outweighs the risk” at the current price point for this counter and maintain their target price of 86 cents.

CGS-CIMB's Ong Khang Chuen and Kenneth Tan are slightly less positive on ThaiBev’s prospects in both Thailand and Vietnam, noting that weakness in the latter overshadowed Thai strength during 3QFY2023. While they were “positively surprised” by the strength shown in ThaiBev’s spirits segment, they believe political uncertainties in Thailand remain a near-term overhang.

As a result, their sum-of-the-parts (SOTP) based target price has dropped to 75 cents as they ascribe lower enterprise value (EV) and ebitda multiples of 8x to ThaiBev’s beer unit given its weaker near-term outlook and a weaker Thai Baht (THB). Despite macroeconomic uncertainties, they believe the company’s valuation is attractive at 11.4x 2024F P/E or 2 s.d. below its five-year mean.

Ong and Tan’s re-rating catalysts include better-than-expected margins on prudent cost control and productivity improvements, while downside risks include a weaker macroeconomic environment dampening its sales volumes and higher-than-expected selling, general, and administrative expenses (SG&A) hurting margins.

RHB Bank Singapore's Alfie Yeo says he continues to like ThaiBev for its "strong market leadership in Thailand and Vietnam". The group is a beneficiary of Thailand's economic recovery as well as the return of tourists to Vietnam after the pandemic, he adds.

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In addition, Yeo is positive on ThaiBev's earnings growth, which is driven by better sales as consumption recovers. In his view, the group's valuation is undemanding, with the stock trading at around 12x its blended FY2023 - FY2024 P/E, at around -1.5 s.d. from its historical forward mean P/E of 18x.

Meanwhile, Paul Chew of PhillipCapital expects beer volumes for Sabeco to remain weak for the rest of the year, with any recovery only expected to arrive early next year from economic uplift and lower raw material cost. ThaiBev's spirit volumes could also soften as post-election festivities wind down and farm incomes have been trending down.

Chew has lowered his target price to 75 cents, down from 80 cents previously, after cutting earnings by 7%. His target price is based on an 18x FY2023 earnings forecast, ThaiBev's 5-year average and a market valuation of its listed associates.

As at 4.33pm, shares in ThaiBev were trading flat at 57 cents.

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