SINGAPORE (Sept 19): OCBC is maintaining its “buy” call on Thai Beverage with a fair value estimate of $1.01 given the stock’s long-term growth prospects.
This is despite the implementation of Thailand’s new excise tax law, which was announced recently with immediate effect as part of the nation’s effort to make tax collection more transparent.
Government officials expect a “moderate” rise in prices for alcoholic beverages and sugary drinks with tax for beer expected to rise by about THB0.50 per can and THB2.66 per bottle.
“White spirits will be taxed more, by THB0.84-3.49 per bottle. For other types of locally produced spirits, the additional tax will be THB8 per bottle for 28% alcohol content and THB30 for 40% alcohol content. Sugary drinks also face higher taxes – soft drinks will be THB0.13-0.50 per bottle, while sugar-free soft drinks will be taxed less by THB0.28-0.36 per bottle,” says lead analyst Jodie Foo in a report on Tuesday.
While Foo acknowledges that higher taxes may affect consumer spending on beverages in the near term, he believes the spirits segment has the ability to sustain ThaiBev’s earnings given its extensive portfolio and significant market share.
“As beer is not a market leader, any reaction will likely have to track is peer. Historically, the group has been able to pass on higher costs, and sales growth eventually recovers,” he notes.
Following the end of the mourning period and a royal cremation ceremony to take place over Oct 25-29 for the late King Bhumibol, Foo opines that year-end festive season will see advertising and promotion (A&P) efforts to be more effective, with prospects of on-premise consumption recovering.
“The current 3Q (4QFY17) is already seasonally the softest consumption period for the group, given the Buddhist festive season. There may be some pre-stocking up of goods by traders before the tax implementation to partially offset the above impact, but as of mid Aug, management had not seen a significant build-up in volumes,” says Foo.
As at 10.45am, shares in ThaiBev are trading 0.5 cent lower at 91 cents or 20.9 times FY18 forward earnings.
