UOB Kay Hian (UOBKH) has maintained its “buy” call on Thai Beverage Y92 (ThaiBev) with a lower target price of 75 cents, from its previous 83 cents. This is on the backing of lower valuations for the beer segment, and a stronger Singapore dollar since UOBKH’s last update.
Analysts Llelleythan Tan and Heidi Mo note that Thailand’s tourist arrivals continue to improve y-o-y, with approximately 2.47 million tourist arrivals in August 2023, roughly 71.2% of pre-Covid-19 levels. This is on the back of the country’s fully reopened international borders, relaxed global travel restrictions and a sharp rebound in Chinese tourists.
Despite the overall upward momentum, Chinese tourist arrivals were lower than expected, falling 13.4% m-o-m but still 11.8x y-o-y higher in the month of August, they note.
“Excluding seasonal factors, we opine that insufficient flight capacity from China to Thailand, a slowing domestic economy in China, long visa approval times and mainly ongoing safety concerns about Thailand led to the lower-than-expected Chinese visitor numbers,” say Tan and Mo. “In our view, it is unlikely that the Chinese tourist arrivals would hit the estimated five million to seven million goal set by Thailand’s authorities for 2023.”
But with the implementation of a temporary scheme from end-September to allow visa-free entry for Chinese tourists into Thailand, the government anticipates an additional 2.9 million Chinese tourists for the five month period as compared with the 2.2 million that arrived y-t-d, say the analysts.
As Chinese tourists are the largest source of visitors pre-Covid-19 with the largest expenditure, Tan and Mo think that this would benefit consumer companies like ThaiBev.
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However, the recent shooting incident in Bangkok may cause a near-term temporary delay in Chinese tourism recovery. The analysts say that increased safety concerns after this incident is likely to deter Chinese tourists from travelling to Thailand.
They note previous incidents such as a fatal bombing incident in Bangkok in Aug 2015 which caused a sharp fall in Chinese tourist arrivals immediately from around 800,000 in that month, to 530,000 to 640,000 in Sept to Dec 2015, before recovering back to pre-incident levels in Jan 2016.
Other incidents include a boat capsizing incident in Phuket which caused the death of 47 Chinese tourists, which took four to five months before Chinese tourist arrival returned to pre-incident levels.
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“Based on this, we expect Chinese tourist arrivals to fall in the coming one to two quarters, offsetting Thailand’s overall tourism recovery,” say Tan and Mo.
The analysts also believe that this may offset the ongoing recovery for ThaiBev’s brown spirits and beer segments, given the on-trade consumption nature of these products.
“We note that sales volumes/ebitda margins for the spirits segment fell one to two quarters after these two incidents, implying a loss in sales volumes for the higher-margin brown spirits. We reckon that the beer segment would also suffer a similar loss in sales volumes as well,” they add.
Meanwhile, the analysts see a bright spot in Vietnam, following the easing of its visa application processes. Starting August 2023, Vietnam will offer 90-day e-visas to citizens of all countries with multiple entries.
In it 9M2023, Vietnam’s tourist arrivals had recovered back to around 70% of pre-Covid-19 levels at 8.9 million, beating the government’s original eight million target.
“We reckon that there is still room for further recovery for 2023, given that Chinese tourist arrivals in Sept accounted for only 16.4% of total tourist arrivals (30%-40% pre-pandemic) and 28.5% of pre-pandemic levels. 9M2023 Chinese tourist arrivals to Vietnam are currently at 28.2% of pre-pandemic levels,” say Tan and Mo.
As such, the analysts have lowered their FY2024-FY2025 patmi forecasts by 1%-2%, after accounting for slightly lower sales volumes for the brown spirits and beer segments. Their new FY2023-FY2025 patmi estimates are THB31,961 million ($1,194.37) (unchanged), THB34,092 million (THB34,613 million previously) and THB36,858 million (THB37,534 million previously) respectively.
“We still reckon that ThaiBev remains attractively priced at -2 standard deviation to its five-year mean PE, backed by an expected fundamental earnings recovery underpinned by favourable tailwinds and a decent 4.4% FY2023 dividend yield. We opine that the recent share price weakness presents an attractive entry level,” they add.
As at 11.52am, shares in ThaiBev are trading 0.005 cents up or 0.93% higher at 54 cents.
