Overview of Thai Beverage Public Company Limited (THBEV SP)

Thai Beverage Public Company, the largest beverage producer in Thailand, continues to dominate the spirits market while maintaining a diverse product portfolio that includes spirits, beer, non-alcoholic beverages (NAB), and food. With a market capitalization of S\$12,565.2 million, its stock is currently priced at S\$0.50, with a target price of S\$0.56, implying a 12.0% upside. The company is part of the Consumer Staples sector, with a significant 65.9% stake held by Charoen Sirivadhanabhakdi.

The company has shown resilience despite mixed performance in its Q1FY25 results, maintaining its “BUY” recommendation with a focus on long-term growth supported by its diverse portfolio and cost efficiencies.

Financial Highlights for Q1FY25

Thai Beverage released its Q1FY25 business update, showcasing a 2.4% year-on-year (yoy) growth in revenue to Btm92,265. However, EBITDA saw a slight decline of 0.8% yoy to Btm16,443, primarily due to underperformance in the spirits segment. The company’s EBITDA margin also dipped by 0.6 percentage points (ppt) yoy to 17.8%.

The company demonstrated resilience in its beer and NAB segments, with robust growth in key markets and effective cost management. However, the spirits segment underperformed, facing challenges such as lower sales volumes and increased costs. The food and others segments also struggled, contributing to the overall decline in profitability.

Segmental Performance Analysis

Spirits: A Challenging Quarter

The spirits segment faced a 4.8% yoy revenue decline to Btm32,238, with EBITDA falling by 12.0% yoy to Btm7,949. This was primarily attributed to a 6.2% yoy drop in sales volume, higher operating costs, and increased advertising and promotional (A&P) spending. The unfavorable product mix further impacted EBITDA margins, which fell 2.0ppt yoy to 24.7%.

Despite the challenges, management expects a recovery in Q2FY25, driven by improved domestic economic conditions, the festive season, and increased tourist arrivals. Additionally, raw material costs for the upcoming molasses crop are expected to be 10-20% lower, potentially boosting margins in the second half of FY25.

Beer: Outperformance Across Key Markets

The beer segment delivered a strong performance, with revenue increasing by 8.0% yoy to Btm36,107 and EBITDA surging by 16.6% yoy to Btm4,433. This growth was supported by a 12% yoy increase in sales volumes across key markets, efficient A&P spending, and lower raw material costs. The EBITDA margin improved by 0.9ppt yoy.

The outlook for the beer segment remains positive, with expectations of continued growth in sales volumes and cost efficiencies. Management aims to maintain its leadership position in Vietnam’s market while expanding its domestic market share in Thailand.

Non-Alcoholic Beverages (NAB): Robust Growth

The NAB segment saw a 7.2% yoy increase in revenue to Btm16,955, with EBITDA rising by 15.6% yoy to Btm3,333. Higher overall sales volumes (+7.5% yoy) and improved cost efficiencies contributed to this growth. EBITDA margins expanded by 1.4ppt yoy, reflecting strong demand in the beverages and dairies subsegments.

Food and Others: Margins Under Pressure

While food revenue grew slightly by 2.2% yoy to Btm5,689, EBITDA declined by 6.6% yoy to Btm662 due to higher operating costs. The “Others” segment experienced a 6.6% yoy drop in revenue to Btm1,343 and a significant 55.1% yoy decline in EBITDA to Btm66, largely due to reduced licensing income and title rights.

Balance Sheet and Financial Strength

Thai Beverage has made strides in strengthening its balance sheet through continued deleveraging. The company’s gearing ratio (net interest-bearing debt to equity) improved to 0.73x in Q1FY25 from 0.79x in Q4FY24. However, the net interest-bearing debt to EBITDA ratio saw a slight increase from 2.83x to 2.92x over the same period.

Key Financial Metrics

• Net turnover is projected to grow from Btm340,289 in FY24 to Btm383,339 by FY27.
• EBITDA is forecasted to rise from Btm52,730 in FY24 to Btm62,702 by FY27.
• Net profit is expected to increase from Btm27,215 in FY24 to Btm33,442 by FY27.
• The dividend yield is projected to grow from 4.9% in FY24 to 5.8% by FY27.

Valuation and Recommendation

The report maintains a “BUY” recommendation for Thai Beverage, with a target price of S\$0.56. This valuation is based on a Sum-of-the-Parts (SOTP) methodology, implying a 12x FY25F PE multiple, which is at -1.5 standard deviations from THBEV’s long-term average mean PE. The stock also offers an attractive FY25 dividend yield of 5.4%.

The potential BeerCo IPO remains a significant catalyst, alongside opportunities for mergers and acquisitions or potential spinoff listings.

Conclusion

Thai Beverage continues to demonstrate resilience and adaptability amidst varying segmental performances. While challenges persist in the spirits and food segments, robust growth in the beer and NAB segments, coupled with effective cost management, positions the company for long-term success. Investors can look forward to potential catalysts such as the BeerCo IPO and continued market share gains in key segments.