Singapore Company Update Thai Beverage Public Company Bloomberg: THBEV SP | Reuters: TBEV.SI Refer to important disclosures at the end of this report DBS Group Research . Equity 26 Nov 2020 B rain Box BUY (Our NEW Pilot Research Platform) is available to Institutional Investors Last Traded Price (25 Nov 2020): S$0.720 (STI : 2,869.55) on Demand. Please contact your DBSV Institutional Sales contact for a Price Target 12-mth: S$0.93 (29% upside) (Prev S$0.90) demonstration. Analyst Bottoms up and farewell, FY20! Andy SIM, CFA +65 6682 3718 [email protected] Alfie YEO +65 6682 3717 [email protected] Investment Thesis: Region's leading player at -1.3/ -0.5SD below 5-/ 10-year average. Thai What’s New Beverage Public Company (THBEV) is transforming into the region's • FY20 net attributable earnings down just 2.2%; above leading beverage player. Its valuation is still attractive at c.16x FY21F expectations price-to-earnings (PE), -1.3/ -0.5SD (standard deviation) below its 5-year/ 10-year historical average. • Spirits segment stronger than expected; other segments Resilience during pandemic, poised for recovery. As seen in its 4Q20/ showed sequential improvements FY20 results, net attributable earnings are down by just 2% despite the • Deleveraging faster than expected on robust cashflow; impact of the COVID-19 pandemic. Stable spirits consumption in the Thai loan agreements for refinancing should allay concerns market provides recurring cashflow. Improved contributions from its Vietnamese subsidiary Saigon Beer-Alcohol-Beverage Corp (Sabeco), • Still a good BUY with value in counter; TP: S$0.93 potential market share gains in the Thai beer market and turnaround from the Non-Alcoholic Beverages (NAB) segment provide a strong platform for earnings growth. Price Relative S$ Relative Index Refinancing risks are low; strong cashflow to deleverage. THBEV has 1.1 215 1.0 195 secured a Bt40bn credit line for refinancing to remove any concerns in 175 0.9 155 this area. Continued deleveraging from its strong and stable cashflow, as 0.8 135 0.7 115 well as potential monetisation of assets are key re-rating catalysts. 95 0.6 75 0.5 55 Valuation: Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 Our target price (TP) is based on sum-of-parts (SOP), with core operations Thai Beverage Public Company (LHS) Relative STI (RHS) based on discounted cash flow (DCF) (weighted average cost of capital Forecasts and Valuation (WACC) =7.2%, t=3%) and market value/target value of associate stakes. FY Sep (Btm) 2019A 2020A 2021F 2022F THBEV is trading at c.13x FY21F, PE which is around -1SD below its 10- Revenue 267,357 253,481 277,028 291,438 year historical average. We believe this is not pricing in its potential as EBITDA 42,162 44,062 48,056 52,254 Southeast Asia’s largest food and beverage player. Pre-tax Profit 31,312 32,931 35,822 40,481 Net Profit 23,272 22,752 25,818 28,971 Where we differ: Net Pft (Pre Ex.) 23,272 23,244 25,818 28,971 High gearing mitigated by strong operating cash flow (OCF). Although Net Pft Gth (Pre-ex) (%) 14.1 (0.1) 11.1 12.2 EPS (S cts) 4.10 4.01 4.55 5.11 the market is concerned about THBEV’s high gearing, this should not be EPS Pre Ex. (S cts) 4.10 4.10 4.55 5.11 an issue as its management has termed out its borrowings and is able to EPS Gth Pre Ex (%) 14 0 11 12 repay/ refinance its obligations with its strong cashflows. Diluted EPS (S cts) 4.10 4.01 4.55 5.11 Net DPS (S cts) 2.12 2.04 2.30 2.70 Key Risks to Our View: BV Per Share (S cts) 20.4 25.1 27.4 29.8 Expectations of resilient demand misplaced. Our thesis is premised on PE (X) 17.6 18.0 15.8 14.1 resilient and eventual demand recovery. If this is not sustained or PE Pre Ex. (X) 17.6 17.6 15.8 14.1 misplaced, it could present downside risks. P/Cash Flow (X) 10.6 11.0 12.1 11.7 EV/EBITDA (X) 15.1 14.2 12.8 11.6 At A Glance Gross Div Yield (%) 3.0 2.8 3.2 3.7 Issued Capital (m shrs) 25,116 P/Book Value (X) 3.5 2.9 2.6 2.4 Mkt. Cap (S$m/US$m) 18,083 / 13,488 Net Debt/Equity (X) 1.3 1.0 0.8 0.7 Major Shareholders (%) ROAE (%) 19.7 17.6 17.3 17.9 Siriwana Co Ltd 45.3 Earnings Rev (%): 2 1 Maxtop Management Corp 20.6 Consensus EPS (S cts): 4.47 4.86 Capital Group Cos inc/The 5.00 Other Broker Recs: B: 14 S: 0 H: 1 Free Float (%) 29.1 Source of all data on this page: Company, DBS Bank, Bloomberg 3m Avg. Daily Val (US$m) 14.5 Finance L.P. GIC Industry : Consumer Staples / Food, Beverage & Tobacco ed: KK/ sa: DT, PY, CS Company Update Thai Beverage Public Company WHAT’S NEW Cheers to a Value Buy! Good BUY, still see value in counter; TP: S$0.93. Despite Including the interim DPS of Bt0.10 paid, total DPS for the year appreciating by c.24% since our last note on 20 October (Thai is Bt0.46 (FY19: Bt0.48). The payout ratio of 51% is in line Beverage Public Company: Toast for higher returns!) we believe with its dividend policy of paying out not less than 50% of there is still upside potential for the counter. Its FY21F forward profits. PE valuation at 15.8x is just at -1.3SD and -0.5SD below its historical 5-year or 10-year valuation respectively. Furthermore, This final dividend is marginally higher than our expectations of its FY20 results highlight the company’s resilience despite Bt0.33/share, given better than expected results. We believe COVID-19 headwinds. We reiterate our BUY recommendation this continues to demonstrate the management and Board’s with TP of S$0.93. confidence in the company’s cashflow and financing. The final dividend, after approval at the Extraordinary General Meeting FY20 attributable profit only dipped marginally by -2.2% on (EGM), is expected to be paid on 25 February 2021. resilient operations. THBEV’s FY20 attributable net profit declined 2.2% y-o-y decline to Bt22.8bn on the back of a Spirits 5.2% dip in sales revenue to Bt253.5bn. This was above our Strong spirits warded off COVID-19, profit up 15.4%. THBEV’s expectations. We were expecting a steeper dip of 9%/ 7% in Spirits segment warded off the effects of COVID-19 and posted revenue and net profit to Bt243bn/ Bt21.7bn respectively. It a strong attributable profit growth of 15.4% y-o-y to Bt21.9bn, would seem that the impact of COVID-19 was mitigated by the while revenue was up by 2.2% to Bt117.3bn. Sales volume for resilience of its operations and good cost control by the FY20 inched up by 0.2% to 667.9m. This includes sales volume management team. from Grand Royal (GR) (sales performance of GR has not been separately disclosed since the start of FY20). Along with a shift Despite the pandemic challenges, the credible results were in product mix and cost control in advertising and promotion largely driven by; (i) Spirits segment achieving a attributable (A&P) expenses, EBITDA margins expanded to 24.3%. The net profit growth of 15.4% to Bt21.9bn; (ii) Non-Alcoholic performance was largely attributed to the Group’s strong Beverage (NAB) segment posting a turnaround with product portfolio, coupled with its high off-premise attributable net profit of Bt306m, from a loss of Bt1.02bn. consumption. These were offset by weaker contribution from the Beer segment with attributable net profit down 13.5% y-o-y to In 4Q20, Spirits continued to its recovery with revenue up by Bt825m, loss from the Food segment at Bt38m, from profit of 11.3% y-o-y to Bt28.8bn. This was after two quarters of decline Bt418m and weaker contribution from its associates. In in 2Q and 3Q brought about by disruptions arising from COVID- addition, the Group recognised a deferred tax expense and 19. non-recurring costs arising from the restructuring of its beer business amounting to Bt2.66bn. Without the non-recurring Beer items, attributable profit from normal operations would have Beer impacted by on-premise consumption; Thailand beer less been Bt25.4bn (+9.2% from FY19). affected. The Group’s Beer segment was less than stellar given the effects of the pandemic on on-premise consumption. Top Sequential improvement in 4Q20. On a quarterly basis, line dipped by 11.3% to Bt106.9bn, while attributable net revenue and earnings before interest, taxes, depreciation and profit declined by 13.5% to Bt825m. Overall beer sales volume amortization (EBITDA) improved sequentially. We estimate that dropped by 12.7% to 23.6m hectolitres (hls), contributed 4Q20 revenue grew 2.1% y-o-y. This was on the back of y-o-y largely by a decline in Vietnam. Excluding Vietnam (Sabeco), we declines in 2Q and 3Q at 12.3% and 15.4% drop respectively. estimate that Thailand beer sales registered a marginal 1% dip A stronger trend was seen in its 4Q20 EBITDA which surged by in sales volume. Sabeco’s sales volume saw a 17.6% drop in 31% y-o-y to Bt11.5bn.