UOB Kay Hian analyst Llelleythan Tan is keeping his “buy” call on Thai Beverage (ThaiBev) Y92 as Thailand’s tourism recovery remains on track.
The food and beverage (F&B) group is a beneficiary of the return of tourists to Thailand. Since Tan’s update in January, the country has seen a spike in tourists from China, which is in line with his earlier expectations.
In January and February, Thailand saw 91,841 and 155,656 Chinese tourists respectively, up by 28.5 times y-o-y and 30.8 times y-o-y.
“Moving forward, we reckon that Chinese tourist arrivals would continue its upward momentum throughout 2023, given that February arrivals were only at 15% of pre-Covid-19 levels,” says Tan.
While there was a slight dip in overall tourist arrivals in February at 2.11 million visitors or down 1.5% m-o-m, Tan attributes this to seasonal factors. In his view, tourist arrivals are expected to continue improving in 2023.
“Thailand’s tourism council expects 25 million – 30 million tourists in 2023. Similarly, we now expect 28 million to 30 million tourist arrivals in 2023, roughly 70% - 75% of the 40 million arrivals before the pandemic,” he writes.
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On the recovery in Thailand’s tourism numbers, Tan expects ThaiBev’s spirits ebitda to grow by 8% to 10% y-o-y in the 2QFY2023. The analyst attributes this to the expected higher volumes for its brown spirits, which enjoy higher average selling prices (ASPs), as well as higher ebitda margin assumptions as raw material prices are expected to soften. However, the analyst notes that his forecasts may face potential downsides on the back of higher-than-expected operating costs and lower-than-expected white spirits volumes.
Meanwhile, the analyst expects ThaiBev’s beer ebitda to fall by 15% to 16% y-o-y in the 2QFY2023 as he expects margin compressions to continue as competition within the domestic beer industry heats up. That said, better-than-expected cost management may reflect an upside to Tan’s estimates.
Tan also expects ThaiBev’s 2QFY2023 ebitda for the non-alcoholic beverages (NAB) segment to fall by around 20% y-o-y as ebitda margins are expected to compress from higher marketing activities and an overall inflationary cost push. While the group’s food segment faces the same issues, the analyst is expecting it to report a 10% y-o-y growth in its 2QFY2023 ebitda due to the low base in the 2QFY2022.
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Overall, the analyst is estimating ThaiBev’s revenue for the 1HFY2023 to grow by 6% to 8% y-o-y backed by higher revenue contributions from the brown spirits, beer, NAB and food segments.
At the same time, however, he expects its ebitda for the 1HFY2023 to fall by 8% to 10% y-o-y, which implies ebitda margins of 16.6% compared with the margins of 19.8% in the 1HFY2022. Again, Tan sees potential upside in the form of better-than-expected cost management.
At its current price levels, Tan says ThaiBev remains “attractively priced” at below -1.0 standard deviation (s.d.) to ThaiBev’s long-term average mean P/E and backed by favourable tailwinds.
That said, the analyst has lowered his target price to 78 cents from 80 cents previously due to lower market valuations for its Frasers Property and Fraser and Neave stakes, along with a stronger Singapore dollar (SGD).
To him, share price catalysts include the group gaining market share in the beer segment, the spin-off listing of BeerCo and lower-than-expected operating costs.
As at 2.32pm, shares in ThaiBev are trading flat at 65.5 cents.
