• Expect earnings resilience ahead
• Grew during tumultuous times historically
• Re-iterate BUY

Expect some earnings resilience during political unrest

Following a six-month political deadlock in Thailand that saw PM Yingluck Shinawatra and several ministers being ordered out of office, the military seized power in a coup. Though ThaiBev' s  revenue is largely derived from Thailand (1Q14: 96.2%), we see limited impact from the current political unrest. First, the political unrest is mainly limited to Bangkok, while ThaiBev' s sales takes place in every province in Thailand. According to CEIC, Bangkok' s 2012 population at 5.7m only makes up 8.8% of total population. Second, ThaiBev' s defensive alcoholic portfolio will shelter against economic contraction triggered by political uncertainty. In the latest 1Q14 releases, spirits sales revenue held up well (+10.4% YoY) despite GDP contracting (-0.6% YoY) as a result of consumers switching from brown to the cheaper white spirits. Since spirits segment makes up bulk of net profit (95.2% in 1Q14), its defensiveness will provide earnings resilience for ThaiBev. Finally, proportional accounting (vs. current equity accounting) of F& N and FCL revenues (largely non-Thailand) with Thaibev' s 28.6% stake would reduce ThaiBev' s underlying exposure to Thailand by an estimated 12.6ppt to 83.6% based on 1Q14 figures.

Using history as a guide

Political unrests are the norms during FY08-FY13. During this period, spirits segment' s revenue consistently grew by high single- to double- digit (7.3%-16.6%), thus displaying growth resilience. Through the spirits segment alone, we can observe that political instability can co-exist with growing consumption of ThaiBev' s products. As there are beer industry-specific competition and excise tax hikes, we exclude using beer business as a historical guide. The nonalcoholic and food segments are also excluded as they are grown through M& A.

What will worry us then?

We maintain our view that the current political unrest' s impact on ThaiBev will only make a slight dent on near-term revenue growth (5.2% in FY14F 6.3% in FY15F), unless the protest ground widens beyond Bangkok. We re-iterate BUY with S$0.74 fair value estimate.

Source: OCBC Research - 5 Jun 2014    ...last:$0.640...

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...Believe in yourself make your own independent decision Cheer...

We maintain our recent technical BUY for the above stock (featured on 16 May 14) with target price of S$0.72 as the stock continues its rebound from its 50-day EMA mentioned earlier. Watch to see if the stock price could close above S$0.66 as its MACD indicator turns up from its centreline. Protective (trailing) stops could be placed at S$0.595.

• 1Q14 PATMI above expectation
• Intense competition in nonalcoholic beverage
• Maintain BUY

GP margin surprise in 1Q14 results

Despite Thailand' s political unrest scaling up in 1Q14, ThaiBev has shown earnings resilience. ThaiBev' s 1Q14 revenue increased 4.8% YoY to THB41.0b, in-line with expectation as it forms 25.1% of our FY14 forecast. Due to better-than-expected gross profit (GP) margin, PATMI increased 72.9% to THB6.0b, making up 30.2% of our expectation. The better GP margin came from beer and spirits segments. In 1Q14, beer' s GP margin was 18.9% (vs. 13.1% in 1Q13) while spirits' GP margin was 33.5% (vs. 32.0% in 1Q13). The higher GP margins are due to raising average selling price (ASP) more than the increase in excise tax in 4Q13. On a QoQ basis, the GP margins for beer (vs. 15.3% in 4Q13) and spirits (vs. 32.6% in 4Q13) segments were also better as pre-excise tax increase inventory were sold without the higher ASP in Oct-13.

Alcoholic segments retain market shares

In 1Q14, spirits sold was flat YoY at 141m litres. However, there was a shift in product mix from brown to white spirits, which is more profitable due to a lesser need for advertisements and promotions. Beer volume, on the other hand, dropped by 11.7% YoY to 144m litres. Nevertheless, ThaiBev' s beer market share is still ~30% as the overall beer market had shrunk by the same degree after excise tax increase last year.

Non-alcoholic beverage facing competition

In 1Q14, non-alcoholic beverage sales decreased by 22.1% YoY to THB3.7b, mainly due to competition that caused sales volume drop. Sermsuk product sales decreased 7.7% to 215.3m while sales volume of Oishi beverages dropped 16.0% to 57.8m litres. Going forward, ThaiBev will be working together with its subsidiaries (i.e. Oishi and Sermsuk) to extend one another&rsquo s distribution.

Revise GP margin upwards new TP S$0.74

We revise the GP margins for beer and spirits segments upwards to take into account the higher ASP. We maintain BUY with a slightly higher TP of S$0.74 (previous S$0.73)

Source: OCBC Research - 15 May 2014