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ThaiBev 'largely underappreciated' by market with its 'attractive valuation': UOB Kay Hian

Felicia Tan
Felicia Tan10/25/2021 11:43 PM GMT+08  • 4 min read
ThaiBev 'largely underappreciated' by market with its 'attractive valuation': UOB Kay Hian
Tan’s report comes after the Thai government announced its plans to reopen the country’s international borders to 10 countries.
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UOB Kay Hian analyst Llelleythan Tan has maintained “buy” on Thai Beverage (ThaiBev) with the same target price of 92 cents.

“We value: the spirits business at 17 times EV/EBITDA, lower than global peers; the beer business at 16 times EV/EBITDA, in line with ASEAN peers; the non-alcoholic beverages (NAB) business at 2.5 times EV/sales; and the food business at 14 times EV/EBITDA, in line with local peers,” writes Tan in an Oct 22 report.

“Frasers Property and Fraser & Neave, in which ThaiBev owns 29% each, are valued based on market value,” he adds.

See: Continue to 'buy' ThaiBev on strong fundamentals: RHB

Tan’s report comes after the Thai government announced its plans to reopen the country’s international borders to 10 countries to boost its battered tourism sector.

From Nov 1, vaccinated travellers from 10 “low risk” nations will be allowed to enter Thailand without the mandated seven-day quarantine restrictions.

Countries on the list include Singapore, the US, UK, Germany and China.

According to the Thai prime minister, the list of countries may increase in December and January 2022 depending on the success of the initial phase of reopening.

The authorities are also looking into lifting Thailand’s ongoing alcohol ban in restaurants on Dec 1.

Bars and nightlife venues could also reopen amid the higher number of international tourist arrivals.

The way Tan sees it, the arrival of vaccinated tourists would help boost alcohol consumption and volume in the country.

“With 90% domestic market share for spirits, ThaiBev is set to experience an uplift in FY2022 spirits sales volume due to higher tourist arrivals and the relaxation of Covid-19 restrictions,” he writes.

“ThaiBev’s 9MFY2021 spirits sales volume remained resilient (+4.2% y-o-y) in spite of the Covid-19 pandemic, largely due to its commanding market share and roughly 95% of sales volume being off-trade,” he adds.

According to Thailand’s Office of Industrial Economics (OIE), 2021 year-to-date sales volumes for white and brown spirits in the country have recovered to 95% and 85% of pre-Covid-19 levels.

“Looking forward, with the arrival of vaccinated tourists in 1QFY22, we think this would help support ThaiBev’s on-trade and off-trade spirit volumes from FY2022 onwards,” continues Tan.

Amid the reopening of entertainment venues along with the alcohol ban, Tan says he expects a stronger rebound for on-trade spirit sales volumes.

On this, he estimates that “a full recovery for on-trade spirit volumes would boost the spirits segment’s FY2022 EBITDA and ThaiBev’s FY2022 net profit by 2.0-3.0% respectively”.

“As the spirits segment has historically contributed 85% of the group’s overall net profit, we reckon that upcoming favourable tailwinds for the spirits segment would help lift ThaiBev’s overall earnings moving forward,” he says.

On ThaiBev’s beer segment, a full recovery in on-trade volumes to pre-Covid-19 levels would see the segment’s FY2022 EBITDA increasing by 1.5% to 2.0%.

“However, as close to 90% of ThaiBev’s beer segment net profit comes from Sabeco, we reckon that net margins expansion would instead be dependent on the reopening of entertainment venues in Vietnam, which remains closed, rather than Thailand. Thus, we see little impact on ThaiBev’s overall net profit,” writes Tan.

To this end, Tan sees ThaiBev as “attractively priced” at -1 standard deviation (s.d.) at its mean price-to-earnings (P/E) and EV/EBITDA.

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This, he says, is “backed by an expected earnings recovery underpinned by favourable tailwinds”.

“In our view, this [counter] remains largely underappreciated by the market given ThaiBev’s attractive valuation,” he adds.

Shares in ThaiBev closed 0.5 cent lower or 0.7% down at 71 cents on Oct 25, or an FY2021 P/B of 2.9 times with a dividend yield of 2.8%.

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