March 23, 2023

Quench your thirst with this liquid gold 

What’s New 

• Recent correction presents attractive entry point at -1SD of its 5-year average PE multiple and among the lowest versus SEA peers 

• Topline driven by higher beer sales from festive celebrations and return of tourists in Thailand 

• Margins to improve q-o-q as input and A&P costs ease 

• Maintain BUY, S$0.86 TP

Investment Thesis

SEA beverage market leader. Thai Beverage (“ThaiBev”) is the undisputed market leader in SEA. Its portfolio of alcoholic and nonalcoholic brands includes Chang, Saigon Beer, Hong Thong, Mekhong, Grand Royal, and Oishi green tea amongst others. These brands have been the dominant brands in their respective geographies in the past decade. The Group also has exposure in food business, and hold franchises for KFC and Starbucks, in Thailand. 

Spirits business remains resilient. We expect spirits revenue to recover in the coming quarters as inflation eases and Thailand celebrates the first Songkran (Apr-22) without COVID restrictions. Profitability for the segment should remain intact with the uptick in demand for higher margin brown spirits. Net-net, while we expect spirits’ revenue to be resilient, EBITDA should tick up by end FY23F. Strong top-line growth for beer in FY23F with higher profitability in FY24F. We expect a stellar showing in beer driven by festive celebrations, China reopening and robust GDP growth. While we are seeing margin compression with higher advertising & promotion (A&P) spend and input cost pressure currently, we expect this to ease in the ensuing quarters. Given current raw material price trajectory, we project input cost pressure to subside towards FY24F and y-o-y margins to expand accordingly. 

Maintain BUY with lower TP of S$0.86. Our target price is based on sum-of-the-parts (SOTP), with core operations valued using discounted cash flow (DCF) and associate stakes at market value. There is 39% upside based on a combination of earnings growth and valuation re-rating to -0.75SD of its 5-year average EV/EBITDA of 14.8x, which is lower than average of regional SEA beverage peers.

Key Risks

Severe macroeconomic headwinds. Growth might fall short of expectations if inflation continues to remain high in Thailand and economy slows more than expected in Vietnam.

Fierce competition in Vietnam. Margins might fall short of expectation should competition remain intense and management maintains its high A&P spend to defend market share.

Company Background 

Thai Beverage Public Company (THBEV) is a leading beverage producer in Thailand, with business segments spanning spirits, beer, non-alcoholic beverages, and food. Its key brands are Sangsom, Hong Thong, and Chang. It has 28.5% and 28.3% associate stakes in both Singapore-listed Fraser & Neave Ltd (FNN) and Frasers Property Limited (FPL). It also holds a controlling 53.58% stake in Sabeco, Vietnam’s largest beer player by market volume with brands such as Saigon Beer, Lager, Export, and 333.

BUY by DBS Group Research.  Share price closed at S$0.64