Analysts from CGS-CIMB Research, DBS Group Research, KGI Research and UOB Kay Hian are keeping their “add” and “buy” calls on Thai Beverage Y92 (ThaiBev) after the Thai government announced that it will be reducing its domestic alcohol tax for a year on Jan 2.
The move comes as the Thai government seeks to boost the country’s tourism and economy.
Approved measures include the exemption of import tariffs on wine, reducing excise taxes on wine and eliminating taxes on local spirits. The excise tax on entertainment venues will also be halved.
The measures are expected to take effect shortly and will expire at the end of this year.
“The tax cuts came as a positive surprise to us as we had previously thought an excise tax rate hike for alcoholic beverages in calendar year (CY) 2024 was likely in a bid to fund the Thai government’s economic stimulus measures,” write CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan, although they expect ThaiBev to only partially pass on the lowered taxes to its consumers.
“While we await the publication of ministerial regulations for more clarity on the approved tax cuts, we carried out a sensitivity analysis on FY2024 ending Sept 30 net profit growth (assuming nine months’ impact) to estimate the potential impact from: incremental volume growth, and incremental margin expansion, of ThaiBev’s spirits segment,” they add.
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For the FY2024, Ong and Tan estimate ThaiBev’s net profit to come in at 29.12 billion baht ($1.13 billion).
While they have kept their target price unchanged at 67 cents, the analysts expect to see a positive share price reaction for the counter.
“We expect [ThaiBev’s] spirits strength to drive [its] FY2024 earnings growth,” they write.
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The DBS team has also kept its target price of 72 cents as they see the tax cuts as a positive development for alcoholic consumption and thereby providing a positive share price catalyst for ThaiBev.
“The cut in alcohol tax, albeit temporary till year end in 2024, indicates the authority’s stance to promote tourism and consumption. This cut in alcohol taxes could also douse market concerns of an increase in excise taxes on alcohol to fund the government’s recently announced fiscal measures,” says the team.
“We retain our positive view on the counter with it trading at [around] 12x on FY2024 P/E, which is at about -1.5 standard deviation (s.d.) below its 15-year historical P/E,” it adds.
In a Jan 3 update, the DBS team clarified that the tax cut for alcoholic beverages refers to home-based fermented alcoholic beverages with not more than 7% of alcohol by volume. As such, the announced alcoholic beverages tax cuts should not have material effects on ThaiBev’s products portfolio, notes the team.
"Nonetheless, the alcoholic tax cut news as well as measures to promote tourism has created [a] positive buzz in promoting tourism and consumption, which could signal the Thai government’s stance to stimulate the economy," it adds.
The KGI team, which has an unchanged target price of 56 cents, likes ThaiBev for different reasons including the waiver of visa requirements between Thailand and China from March, with room for further recovery in Thailand’s tourism in FY2024.
Furthermore, the team sees consumer confidence rebounding with the Thai consumer confidence index expected to continue to improve along with the country’s economy.
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“The index has been on a relatively consistent uptrend since May 2022 and currently sits at 60.9 in November,” the KGI team writes. KGI recommends investors enter at 53 cents with a stop loss level of 51.5 cents.
UOB Kay Hian analysts Llelleythan Tan and Heidi Mo have kept their target price of 70 cents as they see no direct impact to the group from the announced tax changes while they await more details.
"We opine that ThaiBev may still benefit indirectly from these tax changes. With lower excise taxes for entertainment venues and given that prices for traditional homemade fermented alcoholic beverages have been lowered, these venues may pass on these tax savings to customers which may drive cross-selling and on-trade alcoholic consumption for higher-margin brown spirits, leading to greater margins for ThaiBev’s spirits segment," write Tan and Mo in their Jan 5 report.
The analysts are more upbeat on the dual visa waiver programme between Thailand and China. The programme will start in March, and is set to boost incoming tourist arrivals for 2024.
As at 2.30pm, shares in ThaiBev are trading flat at 54 cents.
