November 29, 2021

FY21: Resilient Results Despite COVID-19 Lockdown Restrictions

THBEV announced reported FY21 core net profit of Bt27.3b, down 3.2% yoy but well within expectations. Total full-year dividend was at Bt0.50/share (FY20: Bt0.46). FY21 spirits and beer volumes softened by 1.8% and 11.2% yoy respectively, dragged down by COVID-19 lockdown restrictions in 4QFY21. The group continued to benefit from well-managed SG&A costs. Maintain BUY with the same target price of S$0.92. 

RESULTS

• Underwhelming FY21 results but within expectations. Thai Beverage (THBEV) reported FY21 core net profit of Bt27.3b, lower by 3.2% yoy and forming 99% of our full-year forecasts. The yoy decline was largely due to an underperforming 4QFY21 plagued by COVID-19 lockdown restrictions and depressing consumption volumes in core markets. Also, 4QFY20 had trade promotions on white spirits, which kept volumes elevated compared to 4QFY21. The group declared a final dividend of Bt0.35/share, which brings full-year dividend to Bt0.50/share (FY20: Bt0.46) at a total payout ratio at 51%, similar to FY20.

• Continued cost control bearing fruit. Continuing from FY20, THBEV has managed to maintain effective cost control for FY21 with SG&A costs dropping 0.2ppt yoy. Even with lesser Advertising and Promotion (A&P) spending, the group managed to increase its market share for its Thailand beer business by 2%.

• ASP hike to tackle rising costs. To mitigate higher material costs, management has noted that the group is planning to increase ASPs for its white spirits and certain key products. With the influx of foreign tourists and the planned reopening of entertainment venues on 16 Jan 22, management expects that there would be enough demand to absorb the ASP hike and not impact consumption volumes going forward. 

STOCK IMPACT

• Spirits: Resilient as always. For FY21, in spite of a poor 4QFY21, spirits revenue (-1.9%), EBITDA (+0.9%) and net profit (-0.8%) were largely stable yoy due to 90-95% of volumes being consumed off-trade. FY21 spirit volumes fell slightly (-1.8% yoy) at 656.1m litres as lockdown restrictions along with a lack of government support caused 4QFY21 spirit volumes to drop (-19.1% yoy, -14.0% mom). However, management has noted that with lockdown restrictions lifted, they expect 1QFY22 consumption volumes to increase. FY21 EBIT margins improved 0.4ppt due to a decrease in A&P spending and lower rental expenses. With the planned ASP hike for white spirits, we reckon that the spirits segment would outperform as consumption volumes improve.

• Beer: Most affected by lockdowns. Due to the on-trade nature of the beer segment, FY21 total beer volume was down 11.2% yoy, largely contributed by 4QFY21 (-39.5% yoy) caused by the nationwide alcohol ban in restaurants and entertainment venues remaining shut. FY21 beer revenue and EBITDA were down 7.2% yoy and 2.8% yoy respectively. However, due increased market share for the group’s domestic beer business, net profit to shareholders improved to Bt915m (+10.9% yoy). In Vietnam, due to ongoing lockdown restrictions and an alcohol ban in eateries, FY21 volumes for Sabeco fell -14.6% yoy. We opine that volumes will likely continue to recover as COVID-19 restrictions are gradually eased. Management has noted that they reckon both Thailand and Vietnam would not return a zero COVID-19 policy which would help boost beer consumption volumes moving forward. FY21 EBIT margins improved by 3.1ppt to 10.4%, on the back of lower SG&A expenses.

• NAB: Prudent cost management; Food: Lockdown affected sales. For the nonalcoholic beverage (NAB) business, FY21 revenue dipped 6.6% yoy while EBITDA grew 15.3% yoy to Bt2.1b and net profit grew 51.0% yoy to Bt0.55b. The better performance was due to prudent cost management and reduced A&P spending. For the food segment, lockdowns had affected sales as FY21 revenue fell 14.4% yoy and net loss widened to Bt488m (Bt101m in FY20). However, the segment is expected to improve as lockdown restrictions are being gradually lifted.

• Delays in lifting alcohol restrictions and emergence of new COVID-19 variant. As Thailand’s authorities assess the kingdom’s COVID-19 situation from the 1 Nov 21 reopening of international borders and the removal of the nationwide curfew, the 1 Dec 21 reopening of bars, nightclubs and entertainment venues has been delayed till 16 Jan 22. Currently, only four provinces in Thailand are allowed to serve alcohol in restaurants till 9pm without curfew. Also, bars and restaurants remain closed in Vietnam as COVID-19 cases spike. The emergence of a new Omicron variant has ignited a wave of travel restrictions against certain countries. If the new variant is found in Thailand, this may lead to renewed travel restrictions and derail tourism recovery.

EARNINGS REVISION/RISK

• We made insignificant changes to our FY22-23 revenue and net profit forecasts on higher ASPs for white spirits, delayed lifting of alcohol restrictions and a better medium term recovery outlook. We have also added our FY24 forecasts into our estimates.

VALUATION/RECOMMENDATION

• Maintain BUY with the same SOTP-based target price of S$0.92. We value: a) the spirits business at 17x EV/EBITDA, lower than global peers, b) the beer business at 16x EV/EBITDA, in line with ASEAN peers, c) the NAB business at 2.5x EV/sales, and d) the food business at 14x EV/EBITDA, in line with local peers. Frasers Property and Fraser & Neave, in which ThaiBev owns 29% each, are valued based on market value.

• We reckon THBEV remains attractively priced at below -1SD to its mean PE, backed by an expected earnings recovery underpinned by favourable tailwinds. Also, the potential listing of the group’s beer business may unlock value for the group. Management has mentioned that the group has resumed the IPO process and would release more information moving forward. Barring no unexpected delays, we opine that the expected IPO date would happen in 3Q/4QFY22.

SHARE PRICE CATALYST

• Potential spinoff listing, reopening of bars in Vietnam, vaccine for the Omicron variant.

BUY by UOB Kay Hian Research. Share price closed at $0.685.