Thailand’s multi-stage plans to relax measures and revive its tourism sector has pushed UOB KayHian (UOBKH) to maintain its “buy” call and target price of 90 cents on Thai Beverage (ThaiBev).
This is expected to give the counter a 25.9% upside from its 71.5 cent price, analyst Llelleythan Tan writes in an Apr 1 note.
“We reckon ThaiBev remains attractively priced at -1 standard deviation to its five-year mean price-to-earnings, backed by an expected earnings recovery underpinned by favourable tailwinds,” he explains.
Starting from April 1, Thailand no longer requires travellers to submit a negative pre-departure PCR test. Instead, they would only need to have a negative PCR test on arrival as well as a negative ART test result on their fifth day of travel.
The Thai authorities are now looking to treat Covid-19 as an endemic from July 2022 through a four-phase plan. Some of the guidelines proposed include simplifying the travel application process for international tourists.
Aside from this, the kingdom has relaxed alcohol restrictions from Apr 1 in 24 provinces such that eateries there can serve alcohol up till 11pm. Chiang Mai and Phetchaburi – which are places popularly frequented by tourists – have also been added to Thailand’s blue sandbox tourism areas.
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While entertainment venues such as bars and clubs remain closed, they are now able to temporarily operate as restaurants serving alcohol, albeit under strict guidelines.
Tan notes that there are ongoing talks to allow Thailand’s nightlife industry to reopen fully. This would in turn allow for higher alcohol consumption – and thus benefit Thai Bev.
The number of international arrivals to Thailand had seen a slight dip to 133,903 in January from 230,497 in December 2021 following the emergence of the Omicron variant and the subsequent suspension of the country’s Test and Go Scheme.
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The resumption of the scheme brought 152,954 international arrivals in February. The number is now estimated to hit 5 million for the whole of 2022, a fraction of the 40 million before the pandemic hit.
Data from Thailand’s Office of Industrial Economics reveals that domestic sales volume of mixed spirits was down 13.0% y-o-y in January and 1.3% y-o-y in February. While such data has not been released for beer, Tan expects “similar consumption trends to mixed spirits given the on-trade consumption nature of beer”.
A cause for concern is that the number of Russia tourists – which accounted for around 4- 6% of total international tourists pre-pandemic- will now soften as the Ukraine-Russia conflict rages on, says Tan.
“Forming a significant portion of Thailand’s early tourism recovery in January (17.7% of total tourists) and February (11.7% of total tourists), we expect the loss in Russian tourism to hurt 2022’s expected total tourism arrival of five million by 2-3% as Russians start cancelling their holidays,” he explains.
However, Tan notes that the “upcoming influx of non-Russian international arrivals would help mitigate the overall loss in Russian tourists”.
To this end, he is maintaining his “earlier expectations that Thai Bev would experience a recovery in consumption volumes as international arrivals start to recover, backed by the easing of domestic alcohol restrictions.”.
Other opportunities Tan foresees include the potential IPO of ThaiBev’s beer business in 3Q/4Q FY2022.
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He is valuing the beer business at around US$5 billion ($6.8 billion) at 13 x FY2022 EBITDA – smaller than that of its competitors like Tsingtao Brewery Company (valued at US$14 billion), Budweiser Brewing Company APAC (US$35 billion) and Asahi Group Holdings (US$18 billion).
As at 12.49pm on Apr 1, shares in Thai Bev were down 0.5 cents or 0.70% to trade at 71 cents.
Cover image: file photo
