Equity Research 7 December 2020 Company update Chu Peng Thai Beverage Equity Research Singapore| Consumer Staples Rating BUY (as at 7 December 2020) Last Close SGD 0.73 Fair Value SGD 0.89 Gradual recovery ahead Security information • Resilient Spirits sales Ticker THBEV SP Market Cap (SGD b) 18.2 • Food business saw greater impact from Covid-19 Daily turnov er (SGD m) 21.8 • Domestic beer market share reached 12-year high Free Float 32% Investment thesis Shares Outstanding (m) 25,116 Top Shareholder SIRIWANA COMPANY 45.3% Thai Beverage PLC’s (ThaiBev) results were above ours and the street’s expectations due to better-than- Price performance chart expected sales volume and lower costs. FY20 revenue 1.1 4,046 decreased by 5.2% YoY to THB 253.5b due to weaker 1.0 3,546 sales from Beer, Nonalcoholic and Food business, 0.9 3,046 partially offset by an increase in sales of Spirits while 2,546 0.8 PATMI was down 2.2% YoY to THB 22.8b. Spirits business 2,046 0.7 remained resilient amid Covid-19 due to its off-premise 1,546 consumption nature while Food business saw greater 0.6 1,046 impact from Covid-19 with the closure of department 0.5 546 stores and restaurants. ThaiBev is currently trading at a 0.4 46 blended forward P/E of 15.3x which is near 1 s.d. below Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 its 5-year average of 15.4x. We think the valuation is THBEV SP Equity STI Index (RHS) undemanding given the positive development of vaccines, ThaiBev’s strong brand name and product portfolio, and policy stimulus from the government Financial summary which could aid the recovery of consumption. After THB b FY20 FY21F FY22F adjustment on sales volume and cost assumptions, our Rev enue 253.5 269.2 282.4 fair estimate increases from S$0.75 to S$0.89. EBITDA 41.2 40.9 42.9 Investment summary PATMI 22.8 26.9 28.7 • FY20 results beat expectations – Thai Beverage PLC’s EPS (THB) 0.9 1.1 1.1 (ThaiBev) FY20 revenue decreased by 5.2% YoY to DPS (THB) 0.5 0.5 0.6 THB 253.5b due to weaker sales from Beer, Nonalcoholic and Food business, partially offset by Key ratios an increase in sales of Spirits. Net profit fell marginally FY20 FY21F FY22F by 0.1% YoY to THB 26.1b while PATMI was down 2.2% YoY to THB 22.8b in FY20, which translates to 106% of Net profit margin (%) 10.3 11.0 11.2 our full-year forecast. A full-year dividend of 0.46 ROE (%) 17.6 19.6 21.5 Baht per share was declared as compared to 0.48 Div idend yield (%) 2.8 3.2 3.4 Baht in FY19. Source: Bloomberg, Company, Internal estimates • Spirits remained resilient despite impact from Covid- 19 – Spirits’ FY20 sales revenue and net profit rose 2.2%/14.7% YoY to THB 117.3b and THB 22.3b respectively. Despite the impact of temporary ban on alcoholic beverage sales in Thailand and the closure of entertainment venues and restaurants, Spirits business remained resilient due to its off- premise consumption nature and strong Spirits 1 Equity Research 7 December 2020 product portfolio and distribution network. For Beer, Results highlights its market share in Thailand reached the highest in 12 years despite lower revenue (-11.3% YoY) and the THB b FY19 FY20 % chg impact of Covid-19. Separately, the Food business Rev enue 267.4 253.5 -5.2% posted a 15.4% YoY decline in revenue to THB 13.2b Cost of sales -190.0 -178.6 -6.0% and net loss of THB 101m (vs. net profit of THB 472m in Gross Profit 77.4 74.9 -3.3% FY19) due to bans on dine-in at restaurants and Selling expenses -28.7 -24.6 -14.2% closure of department stores and restaurants. The non-alcoholic beverage segment’s (NAB) revenue Administrativ e expenses -16.2 -15.6 -3.3% was down 3.1% YoY to THB 16.3b while net income Profit from operations 31.7 34.6 9.1% turned from a loss of THB 998m in FY19 to a profit of Other income 0.8 1.2 64.0% THB 656m in FY20 on prudent cost control. Finance costs -7.2 -7.0 -1.4% • Valuations undemanding – ThaiBev is currently Share of results of associates 4.8 3.3 -32.8% trading at a blended forward P/E of 15.3x which is Exceptional items (incl. FX) 0.01 -0.04 nm near 1 s.d. below its 5-year average of 15.4x. We think the valuation is undemanding given the Profit before tax 31.3 32.9 5.2% positive development of vaccines, ThaiBev’s strong Income tax expense -5.2 -6.9 31.3% brand name and product portfolio, and policy Minority Interest 2.8 3.3 17.9% stimulus from the government which could aid the PATMI 23.3 22.8 -2.2% recovery of consumption. After adjustment on sales Source: Company, Internal estimates volume and cost assumptions, our fair estimate increases from S$0.75 to S$0.89. 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 (%) FY21F FY22F FY21F FY22F FY21F FY22F FY21F FY22F FY21F FY22F THAI BEVERAGE PCL (THBEV SP) 15.4 14.4 2.7 2.5 13.7 12.6 3.3 3.5 18.8 18.4 ASAHI GROUP HOLDINGS LTD (2502 JP) 25.2 15.7 1.5 1.4 15.9 11.5 2.4 2.4 6.5 9.8 ANHEUSER-BUSCH INBEV SA/NV (ABI BB) 34.6 21.7 1.8 1.7 13.8 12.1 1.0 1.6 3.5 8.6 CARLSBERG AS (CARLB DC) 23.7 20.8 3.2 3.1 12.1 11.0 2.2 2.4 13.5 14.7 HEINEKEN NV (HEIA NA) 43.4 26.3 3.3 3.1 17.3 13.7 0.9 1.6 6.9 12.1 Source: Bloomberg 2 Equity Research 7 December 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-20 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 PE Avg +2SD PB Avg +2SD +1SD -1SD -2SD +1SD -1SD -2SD Source: Bloomberg Source: Bloomberg 3 Equity Research 7 December 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. FY20 Revenue breakdown FY20 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 (46.3%) The Group also has an extensive distribution network Spiritscovering (84.5%) 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 Beer (42.2%) Beer (13.4%) 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 beveragesSoutheast Asia. (6.4%) (2.5%) ThaiBev’s most recognized spirits brands include Ruang Khao, SangSom, Mekhong, Hong Thong, as well as Blend 285; Food (5.2%) Food (-0.4%) 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.