UOB Kay Hian analyst Llelleythan Tan is keeping his “buy” call on Thai Beverage (ThaiBev) as Thailand had removed its quarantine rules and RT-PCR test requirements for vaccinated travellers in May.
The kingdom had also announced that it would be reopening its entertainment venues, along with the easing of domestic Covid-19 alcohol restrictions, effective June 1.
The country’s tourist arrivals had already experienced a strong recovery in April, with an expected 6 million to 7 million tourist arrivals in 2022.
As such, Tan is expecting ThaiBev to benefit from the lightened restrictions.
“High consumption volumes driven by international tourism and domestic consumption are expected to boost earnings moving forward,” he writes in his June 16 report.
However, the higher earnings may be offset by the rising cost of raw materials such as sugarcane, rice and malt.
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Thailand is also facing its highest inflation rate in 14 years, driven by soaring energy and food prices, all of which.
To combat the rising costs, ThaiBev had already increased its average selling prices (ASPs) twice in the 1HFY2022 for its white spirits and beer segments, which have helped support margins.
“As last year’s molasses crop yield [from December 2020 to April 2021] was one of the worst historically, management has also noted that the crop yield this year [in December 2021 to April] has increased [some] 40% y-o-y, which has led to lower current molasses costs,” Tan writes.
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“As 1HFY2022 reflected higher raw molasses costs from the previous crop, the lower raw material costs from the new crop would be reflected from 2HFY2022 onwards, helping to support and potentially expand margins,” he adds.
“For the beer segment, ThaiBev has leftover malt stock from previous harvests which we estimate would last the group for another six to nine months. However, if raw materials continue to stay elevated moving forward, this segment may face future margin pressure once the leftover stock depletes.”
On the back of lower consumption volumes for ThaiBev’s spirits and beer segments, along with higher cost assumptions, Tan has reduced his PATMI estimates for the FY2022 to FY2024 by 2% to 4%.
His new PATMI estimates for the period are now 30.47 billion baht ($1.21 billion) for the FY2022, 32.71 billion baht for the FY2023 and 35.24 billion baht for the FY2024.
Tan has also lowered his target price to 94 cents from $1.05 previously.
“Our lower target price is due to lower FY2022 EV/EBITDA multiples used for the spirits (17x now, 18x previously, 19.7x spirits peers average) and beer segments (12x now, 13x previously, 14x beer peers average),” he says.
“We have increased our 10% discount to peers average to a 15% discount, accounting for the uncertainty faced with rising inflation which may lead to higher operating costs and lower consumption volumes,” he adds.
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However, the analyst still sees ThaiBev as “attractively priced” at 1 standard deviation of its five-year mean P/E.
“[ThaiBev is] backed by an expected earnings recovery underpinned by favourable tailwinds that are already underway.”
The potential listing of its spinoff and the full reopening of bars in Vietnam and Thailand are catalysts to its share price.
Shares in ThaiBev closed 1 cent higher or 1.56% up at 65 cents on June 16.
