Broker’s Call: Cheers to ThaiBev’s FY2022 Earnings, Maintain Add

December 2, 2022

  • Beer and food businesses saw triple-digit-percentage increase in net profit for FY2022, on back of easing restrictions.
  • Full-year dividend per share of THB 0.60 (50% payout ratio), giving investors a 3.8% dividend yield.
  • Demonstrating pricing power as it embarked on another round of price hikes in October to pass on higher costs. Reiterate ADD and target price of S$0.88.

CGS-CIMB Analyst take

There haven’t been many pockets of optimism in the stock market in 2022. However, one such area that has seen a rebound are companies related to hospitality and travel.

One such company listed in Singapore that has greatly benefitted from the global reopening is alcohol beverages firm Thai Beverage PCL (SGX: Y92), better known as ThaiBev.

It’s Southeast Asia’s leading alcohol firm and owns distilleries in Thailand, the UK, and China. ThaiBev owns well-known brands such as the Chang and Saigon beer labels, as well as spirits and a sizeable food business.

The research team at CGS-CIMB Securities maintains our “ADD” recommendation on ThaiBev and our target price of S$0.88 remains unchanged. ThaiBev remains one of our high-conviction picks in the Singapore stock market.

So, for those of us thirsty for more details, here’s what you should know about ThaiBev’s FY2022 earnings.

ThaiBev’s year of recovery

ThaiBev’s Q4 FY2022 revenue and EBITDA increased by 33% and 39%, respectively. However, this was from a low base given Thailand was under strict Covid-19 restrictions last year.

Total net profit for FY2022 was THB 30.1 billion (S$1.17 billion), up 22% year-on-year, and in line with our expectations.

Easing of pandemic and travel restrictions drove incredible revenue growth across all segments. The beer and food businesses were the standout performers given their 144%/177% growth in net profit, respectively, in FY2022.

A full-year dividend per share (DPS) of THB 0.60, at a 50% payout ratio, means that investors now receive a 3.8% dividend yield for holding ThaiBev shares.

ThaiBev’s FY2023 outlook optimistic

While there were some floods in parts of Thailand in October, which could dampen near-term sentiment, we expect volume growth in FY2023 based on three catalysts:

  1. Stronger on-trade sales (especially of brown spirits) as entertainment venues started reopening in June 2022
  2. Major events, including the FIFA World Cup and Thailand’s General Election, and;
  3. An improving domestic Thai economy boosted by stronger tourist arrivals

Management noted that they’ve observed a consumer sentiment recovery and have seen brown spirit sales recover well in Q4 FY2022.

As a result, ThaiBev has started to increase its Selling, General and Administrative (SG&A) spend in anticipation of this rebound in H1 FY2023.

Cost management for ThaiBev will be key

Given ThaiBev’s forward contracts for the procurement of raw materials, we believe higher malt prices this year (which impacts the beer segment) will start to be reflect in FY2023.

Elsewhere, ThaiBev expects molasses prices to ease year-on-year, while prices of alumnium have come down significantly more recently.

Aside from eking out efficiency gains, ThaiBev has launched another round of price hikes in October 2022 in order to pass on costs.

In Thailand, prices have been adjusted upwards twice already while in Vietnam they’ve been tweaked three times.

Reiterate our Add rating with target price of S$0.88

We reiterate our “ADD” call on ThaiBev as we think it can benefit from further volume growth as the company rides the economic recoveries in Thailand and Vietnam.

We fine-tune our FY2023-2024 earnings per share (EPS) forecasts and keep our sum-of-the-parts-based target price of S$0.88 as we roll over our valuation base year.

ThaiBev trades at an undemanding valuation of 12.6x its CY2023 forward price-to-earnings (PE).

Potential rerating catalysts include stronger volume recovery. However, downside risks that investors should monitor include higher-than-expected input costs that will pressure margins.

Disclaimer: CGS-CIMB Securities SMID Analyst KC Ong doesn’t own shares of any companies mentioned.