UOB Kay Hian’s Llelleythan Tan has maintained his “buy” rating on Thai Beverage (ThaiBev) with a sharply higher target price of 85 cents, seeing that the return of Chinese tourists will drive a recovery in the country known as “the land of smiles”.
In his view, ThaiBev remains attractively priced at -0.5 standard deviations (s.d.) to its five-year mean P/E.
In his Jan 18 note, Tan sees that Thailand’s “robust” tourism recovery is expected to continue with its upward momentum, given China’s abrupt shift in its zero-Covid policy. This will provide “strong tailwinds” for consumer companies like ThaiBev.
Elaborating, Tan says that “with pent-up travel demand, Thailand is set to face a surge of Chinese tourists coming into the kingdom, given that Thailand was China’s top travel destination pre-Covid-19 [in 2019].”
He notes that the fact that Thailand implemented a requirement for foreign tourists to show a US$10,000 ($13,197) travel health insurance if they were to return to countries that require a negative PCR-test pre-departure, such as China and India, he thinks that this would not deter Chinese tourists from “revenge travelling.”
This would in turn benefit top destinations for Chinese tourists such as Thailand. Furthermore, in line with its full reopening, Thailand is offering a longer period of stay for tourists.
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From March 31, international tourists with visa exemptions will be permitted to stay up to 45 days, up from 30 days previously, and those with a visa on arrival can stay for 30 days, up from 15 days previously.
Thailand also plans to collect a tourist fee of 300 baht ($11.99) from June 2023 onwards, which Tan thinks will not affect the kingdom’s tourism recovery.
In terms of tourism numbers, Thailand reported approximately 1.75 million tourist arrivals in Nov 2022 alone, quadrupling the whole of 2021 combined.
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They now raise their tourist arrival forecasts to 11-12 million tourists in 2022, higher than their previous expectations of 10-11 million tourists. Before the pandemic, Thailand saw about 40 million arrivals per year.
Tan says that according to statistics from Thailand’s Ministry of Tourism and Sports, Chinese tourists have historically been the largest contributor to Thailand’s tourist arrivals at 27%-28% before the Covid-19 pandemic, with second-placed Malaysia contributing 8%-9%.
However, despite pent-up travel demand, he sees that tight international flight capacity going in and out of China may prevent an immediate sharp near-term tourism recovery in the first half of 2023.
This is because it takes time for airlines to ramp up and restore international flight capacity, and “overwhelming travel demand” by Chinese travellers has led to sky high outbound fares.
This may depress demand for cost conscious travellers. Flight scheduling currently stands at 10-15% of prepandemic levels, and Tan expects that flight capacity would ramp up to near pre-pandemic levels by the end of 2023.
With higher tourist arrivals in Thailand, consumer companies such as ThaiBev are expected to benefit from higher alcohol consumption levels.
For ThaiBev itself, Tan has increased his patmi forecast for FY2023-FY2025 (ending Sept 30) by 1%-3%, after accounting for China’s shift away from its “zero-Covid” policy and an increased revenue and ebitda forecasts for all of ThaiBev’s business segments.
As at 2.46pm, shares of ThaiBev were trading at 70 cents, with a FY2023 P/B ratio of 2.0x and dividend yield of 3.2%.
