ThaiBev cautious on recovery, offering wider product range

Singapore

THAI Beverage Public Co (ThaiBev) said in a post-earnings conference call on Thursday evening that it does not expect a huge jump in sales in the months ahead as the pandemic's impact lingers. Still, analysts remain upbeat about the company's road to recovery.

ThaiBev had on Wednesday reported a 2 per cent dip in net profit to 22.75 billion baht (S$1 billion) for the full year ended Sept 30, 2020, from 23.27 billion baht a year ago. The strong performance from its spirits business was not enough to cushion the impact of weaker sales revenue from the beer, non-alcoholic beverages (NAB) and food segments.

ThaiBev said in the conference call that it anticipates some softness in the Vietnam market for the months ahead before buying starts again during the country's Lunar New Year, or Tet, celebration. This is because Vietnam "is still pretty much in lockdown", with the market buoyed only by domestic activities, despite having handled the Covid-19 situation relatively well, said ThaiBev.

Asked about the long-term impact of Vietnam's toughened stance on drink-driving, ThaiBev expects an initial knee-jerk reaction, but is hopeful that after positive behavioural changes among consumers, there could be changes in the law's implementation and enforcement.

Meanwhile, the Thailand market continues to suffer from weak consumer purchasing power amid the uncertain economic environment. And with no tourists coming in, the group is attempting to focus on domestic consumption such as enhancing its digital platform and offering delivery services for the food business.

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The group's NAB segment continues to be helped by prudent cost management and a reduction in advertising and promotion expenses, which ThaiBev said should help improve profitability margins in the year ahead.

Overall advertising and promotion expenses were also kept "unusually low" for the latest fiscal year ended Sept 30, and the group is hoping to keep it at current levels, though this will depend on what its competitors do.

ThaiBev is also looking to enhance its competitive edge through a wider range of product offerings, which it said will allow it to fend off competitors across various segments.

For instance, ThaiBev unit Saigon-Beer-Alcohol-Beverage Corporation (Sabeco) is dipping its toes into the sub-premium market, which is dominated by competitors Heineken and Tiger, through its new product Bia Saigon Chill.

ThaiBev's widened product portfolio were among reasons analysts are bullish on the company's road to recovery.

RHB Securities maintained its "buy" call and increased its target price to S$0.82 from S$0.72, while CGS-CIMB maintained its "add" call with a higher target price of S$0.87 from S$0.70.

RHB analyst Juliana Cai said in a report on Friday that ThaiBev's full-year net profit was "spectacular" given the challenges posed by Covid-19.

She expects strong earnings to continue in FY21, driven by higher demand from on-trade consumption. The on-trade market includes sales at physical premises such as bars and restaurants.

The robust performance from the spirits segment also signals ThaiBev's extensive distribution network, strong brand equity and diverse product portfolio, which allowed the segment to continue to deliver a resilient earnings base for the group, said Ms Cai.

Meanwhile, CGS-CIMB analyst Cezzane See wrote on Friday that ThaiBev's Vietnam market will be lifted by a wider range of products in FY21. She cited Sabeco's launch of Bia Saigon Chill, as well as Bia Lac Viet, a mass product that could benefit in a downtrending environment.

Ms See added that ThaiBev could be one of the beneficiaries of the potential downtrading trend given its 90 per cent market share in the Thai spirits space and its position as a mass player for beers in Thailand and Vietnam.

RHB expects to see continued positive sales momentum for beer moving into the first half of FY21, even as the segment saw a more severe impact during the pandemic due to its greater exposure to on-trade consumption.

Advertising and promotion expenditure is expected to rise as economic activities and on-trade consumption gradually resume in FY21, but the higher costs should be mitigated by increased demand, improved operational efficiencies, as well as a lower interest rate, said RHB's Ms Cai.

There are also bright spots in ThaiBev's NAB and food segments where profitability is expected to improve as footfall gradually improves, and given that the management has guided for cost structure to stay similar, she added.

Shares of ThaiBev ended Friday at S$0.75, up 0.5 Singapore cent or 0.67 per cent.