Thailand: ThaiBev unlikely to suffer much from impending excise hike or year-long morning period

CIMB Research is maintaining its “add” recommendation on Thai Beverage (ThaiBev) with an unchanged target price of S$1.07, The Edge Markets reported on July 7.

In a report on July 6, analyst Jonathan Seow expresses the view that any near-term consumption weakness which may arise from Thailand’s year-long mourning period or its impending tax hike would be temporary for the beverage company.

“Thaibev’s share price took a beating after its 2QFY17 results disappointed, with net profit falling 23% y-o-y. However, the share price has somewhat recovered since. We had always taken the view that Thaibev was merely facing mini headwinds due to the mourning period and we expect consumption to normalise over time,” notes Seow.

“A recent grumble we have been hearing is whether the latest excise tax will result in weaker volumes. Note that the magnitude and exact details of the new excise tax have yet to be announced,” he continues.

“Nonetheless, our analysis of tax hikes on Thaibev’s sales volumes over the last decade shows that tax hikes do not necessarily result in a drop in volumes. Even if they do, volume declines are never sustained over a prolonged period and volumes eventually recover.”

Instead, the analyst believes the excise hike could have a silver lining in the form of improved margins for the group, based on the observation that ThaiBev “typically tries to take advantage of any excise hikes and raise average selling prices (ASPs) beyond the hike.

CIMB’s current assumptions are hence for the spirits segment’s gross margins to remain flat in FY17F, which it thinks should be easily achieved.

Following a recent discussion with the management of Fraser and Neave (F&N), the analyst also expects F&N to be the vehicle for ThaiBev’s regional expansion plans moving forward.

“A key takeaway [from our meeting] was that F&N confirmed our view that ThaiBev will use F&N to grow the non-Thai business. We like the regional expansion story and expect F&N to be among the bidders for Sabeco, and to also gradually increase its Vinamilk stake (now at 18.74%),” says Seow.

“We believe the stock could re-rate further from corporate actions, including the finalisation of F&N/Frasers Centrepoint’s corporate restructuring, and mergers and acquisitions (M&As) in Vietnam. In its home market, market share gains in beer could also drive the share price,” he adds.

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