UOB Kay Hian analyst Llelleythan Tan has kept “buy” on Thai Beverage (ThaiBev) as he sees better days ahead for the group.
On Feb 1, Thailand reopened its international borders to fully-vaccinated travellers amid the falling number of Covid-19 cases, after suspending its initial quarantine-free visa programme in December for seven weeks.
“Fully-vaccinated international travellers are now able to enter Thailand quarantine-free upon a negative pre-departure/on-arrival PCR swab test and another PCR test on the fifth day of travel. Also, the ‘Sandbox’ programme has now been extended to include the popular beach destinations of Pattaya and Koh Chang,” writes Tan.
According to data released by Thailand’s Ministry of Tourism and sports, the country saw a sharp surge in tourist arrivals due to the quarantine-free programme.
Some 200,000-300,000 international travellers are forecasted to arrive in Thailand in February with better numbers expected in March, according to figures released by the Thai Hotel Association.
In his report dated Feb 4, Tan expects the counter to benefit from higher consumption volumes as international tourism returns.
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The easing of restrictions is also expected to boost ThaiBev’s earnings moving forward, he adds.
To him, ThaiBev is an attractively priced counter with a stable core business in spirits, which investors have “undervalued” and “overlooked” as a recovery play on Covid-19.
For the FY2022, the analyst anticipates growth in ThaiBev’s revenue and EBITDA in its spirits segment by 3.0% y-o-y and 4.7% y-o-y respectively.
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“This is on the back of relaxed domestic Covid-19 restrictions, higher foreign tourist arrivals and the off-trade consumption nature of the white spirits segment,” he writes.
“According to data from Thailand’s Office of Industrial Economics (OIE), domestic volume sales of white spirits in Thailand grew by 1.3%, 30.6% y-o-y and 10.0% y-o-y in October to December 2021 respectively, in sync with the reopening of Thailand’s international borders in November,” he adds.
In the 1QFY2022, Tan estimates that ThaiBev’s spirits revenue and EBITDA would grow by 4 to 5% y-o-y attributable to the growth in white spirits sales volumes during the quarter.
“Potential upside may come from white spirits average selling price (ASP) hikes, barring any large increase in material costs,” he says.
ThaiBev’s beer segment is also on track for recovery as entertainment venues in certain provinces across Thailand are now considered restaurants and are permitted to serve alcohol.
ThaiBev’s key market of Vietnam has also allowed restaurants and bars to reopen in low-risk areas in November 2021.
“Due to the on-trade consumption nature of the beer segment, we expect FY22 revenue and EBITDA for the beer segment to grow 3.0% y-o-y and 7.8% y-o-y respectively based on better consumption volumes,” says Tan.
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That said, as most of the Covid-19 guidelines were relaxed in November 2021 and tightened temporarily in December 2021, the recovery of the beer segment is expected to remain muted in the 1QFY2022 and won’t be seen till 2QFY2022.
“Therefore, for 1QFY22, we expect revenue and EBITDA to post minute 0-1% y-o-y growth. Potential upside would come from better-than-expected volumes from international arrivals,” says Tan.
ThaiBev’s non-alcohol beverages (NAB) segment is expected to see FY2022 EBITDA grow by 4.2% y-o-y, while its food segment is estimated to grow by 14.2% y-o-y respectively.
According to UOB Kay Hian’s Tan, the group’s “ongoing digital efforts and prudent cost management strategy for its NAN segment would continue to pay off with restaurants also starting to reopen. For the food segment, the easing of Covid-19 restrictions and the reopening of restaurants would help boost customer footfall.”
To this end, Tan has lowered ThaiBev’s target price to 85 cents from 92 cents, due to a lower 13 times EV/EBITDA multiple for the beer segment, in line with its global peers.
“We reckon ThaiBev remains attractively priced at below -1 standard deviation to its mean price-to-earnings (P/E), backed by an expected earnings recovery underpinned by favourable tailwinds. ThaiBev’s potential 3Q/4QFY2022 IPO of its beer business may also unlock value for the group,” says Tan.
“Conservatively, we value the beer business at roughly US$5 billion ($6.74 billion) using 13 times FY2022 EBITDA, dwarfed by similar competitors such as Tsingtao Brewery Company (US$16 billion), Budweiser Brewing Company APAC (US$35 billion) and Asahi Group Holdings (US$21 billion),” he adds.
Tan has also lowered his net profit forecasts for the FY2022 to FY2024 by 1-1.5% on the lower consumption volumes caused by the Omicron outbreak and the temporary closure of Thailand’s international borders in the 1QFY2022.
As at 4.03pm, shares in ThaiBev are trading 0.5 cent higher or 0.76% up at 66 cents, or an FY2022 P/B of 2.2 times and dividend yield of 3.2%.
