Equity Research 18 August 2020 Company update Chu Peng Thai Beverage Equity Research Singapore| Consumer Staples Rating BUY (as at 18 August 2020) Last Close SGD 0.64 Fair Value SGD 0.75 Spirits business remained relatively Security information resilient Ticker THBEV SP Market Cap (SGD b) 15.9 • 9MFY20 business update Daily turnov er (SGD m) 18.8 • Recovery in sales volume as countries exit from Free Float 32% lockdowns Shares Outstanding (m) 25,155 • Sabeco weighed on beer performance Top Shareholder SIRIWANA COMPANY 45.3% Investment thesis Price performance chart Thai Beverage PLC’s (ThaiBev) 9MFY20 revenue fell 1.1 4,046 7.4% YoY to THB 190.1b while EBITDA rose 2.2% YoY to 1.0 3,546 THB 32.9b. Sales volume was impacted by the 0.9 3,046 2,546 temporary ban on alcoholic beverage sales in 0.8 2,046 Thailand and lockdowns in Thailand and Vietnam in 0.7 1,546 Apr and May but has recovered gradually since the 0.6 lockdown and ban were lifted in May/June. ThaiBev’s 1,046 0.5 546 Food segment saw the biggest impact from Covid-19 0.4 46 while the performance of Spirits (88% by FY19 net profit) Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 was more resilient than our initial expectations. As lockdowns and bans on alcoholic sales were lifted in THBEV SP Equity STI Index (RHS) May, we could see slow recovery in sales volume in 2H 2020. After adjustment on sales volume and cost Financial summary assumptions, our fair estimate increases from S$0.71 to THB b FY19 FY20F FY21F S$0.75. Rev enue 267.4 250.2 267.2 Investment summary EBITDA 38.3 35.4 38.3 PATMI 23.3 21.4 25.1 • 9MFY20 revenue fell 7.4% YoY while EBITDA rose 2.2% YoY – Thai Beverage PLC’s (ThaiBev) 9MFY20 EPS (THB) 0.9 0.9 1.0 revenue fell 7.4% YoY to THB 190.1b while EBITDA rose DPS (THB) 0.5 0.4 0.5 2.2% YoY to THB 32.9b, driven by improvements in the Spirits and Non-alcoholic beverage’s EBITDA. Sales Key ratios volume was impacted by the temporary ban on FY19 FY20F FY21F alcoholic beverage sales in Thailand and lockdowns Net profit margin (%) 9.8 9.2 10.0 in Thailand and Vietnam in Apr and May but has recovered gradually since the lockdown and ban ROE (%) 19.7 14.6 11.9 were lifted in May/June. Div idend yield (%) 3.3 3.0 3.4 Source: Bloomberg, Company, Internal estimates • Sales volume was impacted by lockdowns – In terms of segment performances, Spirits’ sales revenue fell 0.5% YoY to THB 88.5b on the back of weaker sales volume (-2.5% YoY) while EBITDA grew 4.9% YoY to THB21.6b in 9MFY20 due to lower selling expenses in Thailand and Myanmar. For Beer, 9MFY20 revenue fell 14.2% YoY to THB79.3b due to weak sales volume (-15.5% YoY) while EBITDA was down 9.3% YoY to THB 8.8b. The decline in sales volume was largely 1 Equity Research 18 August 2020 attributable to lower Sabeco sales. Excluding the impact of Sabeco, total sales volume for Beer would have declined marginally YoY despite the temporary ban on alcoholic beverage sales in Thailand. The non-alcoholic beverage segment’s (NAB) 9MFY20 revenue was up 0.5% YoY to THB 12.5b while EBITDA surged 301.6% YoY to THB1.7b due to continued cost management initiatives. Separately, the Food business posted a 14.7% YoY decline in revenue to THB 9.9b while EBITDA declined 46.9% YoY to THB 751m, due to bans on dine-in at restaurants and other food outlets in Thailand in Apr and May. • Valuations undemanding – ThaiBev’s Food segment saw the biggest impact from Covid-19 while the performance of Spirits (88% by FY19 net profit) was more resilient than our initial expectations. As lockdowns and bans on alcoholic sales were lifted in May, we could see slow recovery in sales volume in 2H 2020. ThaiBev is currently trading at a blended forward P/E of 14.4x which is near 2 s.d. below its 5- year average of 17.8x. While valuations are undemanding, we note that Thailand’s soft economic growth outlook remains an important variable for the company’s outlook given its discretionary consumer product portfolio. After adjustment on sales volume and cost assumptions, our fair estimate increases from S$0.71 to S$0.75. Potential catalysts Investment risks • Rebound in domestic alcohol consumption • Slowdown in domestic alcohol consumption • Growth in associates and JVs’ earnings • Weaker economic growth Valuation analysis Price/Earnings Price/Book EV/EBITDA Dividend Yield (%) ROE (%) FY20F FY21F FY20F FY21F FY20F FY21F FY20F FY21F FY20F FY21F THAI BEVERAGE PCL (THBEV SP) 16.1 14.4 2.9 2.6 15.3 13.5 3.1 3.6 18.8 19.5 ASAHI GROUP HOLDINGS LTD (2502 JP) 16.7 11.8 1.2 1.1 12.9 9.5 2.9 3.1 8.2 10.8 ANHEUSER-BUSCH INBEV SA/NV (ABI BB) 29.3 18.3 1.5 1.4 12.8 11.1 1.9 2.2 3.7 8.0 CARLSBERG AS (CARLB DC) 23.6 19.9 3.0 2.9 11.7 10.5 2.2 2.5 12.8 14.4 HEINEKEN NV (HEIA NA) 35.2 22.4 2.8 2.6 14.3 11.7 1.4 2.0 8.4 12.4 Source: Bloomberg 2 Equity Research 18 August 2020 Price/Earnings chart Price/Book chart 22.0 4.5 20.0 4.0 18.0 3.5 16.0 3.0 14.0 2.5 12.0 2.0 10.0 1.5 8.0 1.0 Nov-16 Nov-17 Nov-18 Nov-19 Nov-16 Nov-17 Nov-18 Nov-19 PE Avg +2SD PB Avg +2SD +1SD -1SD -2SD +1SD -1SD -2SD Source: Bloomberg Source: Bloomberg 3 Equity Research 18 August 2020 Company overview (as of 30 September 2019) Company description Thai Beverage Public Company Limited (ThaiBev) is the largest beverage company in Thailand, with four business segments – spirits, beer, non-alcoholic beverages, and food. ThaiBev was listed on the mainboard of the Singapore Exchange in 2006, and in 2012, expanded its business overseas through the acquisition of Fraser and Neave, Limited (F&N), which help further cement its position as the leading beverage producer and distributor in the region. As of 31 March 2019, ThaiBev has 192 subsidiaries, including 18 distilleries, three breweries, and 11 non- alcoholic beverage production facilities in Thailand. The Group also has an extensive distribution network covering 400,000 points of sale in the country. In addition, ThaiBev has an international presence in over 90 countries. The Group has five production facilities in Scotland which are known for producing single malt scotch whiskies such as Balblair, Old Pulteney, as well as Speyburn, and owns one distillery in China which produces the famous Yulinquan Chinese spirit. In Myanmar, ThaiBev has two production facilities and owns the Grand Royal brand, an iconic whisky brand in Myanmar. Furthermore, the Group has stakes in Saigon Beer-Alcohol-Beverage Joint Stock Corporation (“Sabeco”), a leading beer producer in Vietnam, marking an important step in ThaiBev’s journey to become the largest beer player in Southeast Asia. FY19 Revenue breakdown FY19 net profit breakdown As of 31 March 2018, ThaiBev has 192 subsidiaries, including 18 distilleries, three breweries, and 11 non-alcoholic By segment By segment beverage production facilities in Thailand.Spirits (43.0%) The Group also has an extensive distribution networkSpirits covering (88.3%) 400,000 points of sale in the country. In addition, ThaiBev has an international presence in over 90 countries. The Group has five production facilities in Scotland which are known for producing single malt scotch whiskies such as Balblair, Old Pulteney, as well as Speyburn, and Beerowns (44.7%) one distillery in China which produces the famous YulinquanBeer (14.2%) Chinese spirit. In Myanmar, ThaiBev has two production facilities and owns the Grand Royal brand, an iconic whisky brand in Myanmar. Furthermore, the Group has stakes in Saigon Beer-Alcohol-Beverage Joint Stock Corporation (“Sabeco”), a leading beer producer in Vietnam, marking an important step in ThaiBev’s journey to become the largest beer player in Non-alcoholic beverages Non-alcoholic beverages (- (6.5%) Southeast Asia. 4.6%) ThaiBev’s most recognized spirits brandsFood (5.9%) include Ruang Khao, SangSom, Mekhong, Hong Thong,Food as (2.1%) well as Blend 285; and the Group’s signature beer, Chang, is very popular among Thai beer drinkers. In the non-alcoholic beverage space, ThaiBev’s leading brands include Oishi green tea, est cola, and Crystal drinking water. In addition, the Group operatesSource: Company Japanese restaurants, as well as ready-to-cook andSource: ready -Companyto-eat food businesses through its subsidiary Oishi Group Public Company Limited. ThaiBev has also started branching out from these well-established Japanese restaurants and food products, and is accelerating the expansion of its food business by leveraging its subsidiary Food Earningsof Asia per and share its franchise (THB) outlets under KFC, the most popularDividend quick per service share restaurant (THB) brand in Thailand. EPS (THB) DPS (THB) 0.8 1.50 1.37 0.67 0.7 0.61 0.60 1.05 0.6 0.93 0.48 1.00 0.5 0.76 0.74 0.39 0.4 0.50 0.3 0.2 0.1 0.00 0.0 FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19 Source: Company Source: Company 4 Equity Research 18 August 2020 Company financials Income Statement In Billions of THB except Per Share FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 12 Months Ending 30/09/2015 30/09/2016 30/09/2017 30/09/2018 30/09/2019 Revenue — 190.0 190.0 229.7 267.4 - Cost of Rev enue — 134.4 131.9 162.9 190.0 Gross Profit — 55.7 58.1 66.8 77.4 + Other Operating Income — 0.9 0.6 2.1 0.7 - Operating Expenses — 29.9 30.6 42.0 45.7 Operating Income or Losses — 26.7 28.1 26.9 32.4 - Interest Expense — 1.1 1.0 5.0 7.2 - Foreign Exchange Losses (Gains) — -0.2 0.0 -0.1 0.0 - Net Non-Operating Losses (Gains) — -4.2 -12.6 -2.1 -6.0 Pretax Income — 29.9 39.8 24.1 31.3 - Income Tax Expense (Benefit) — 4.8 5.1 4.5 5.2 Income Before XO Items — 25.0 34.7 19.6 26.1 - Extraordinary Loss Net of Tax — 0.0 0.0 0.0 0.0 - Minority/Non Controlling Interests