On Nov 21, Thai Beverage Y92 reported relatively flat FY2024 results ended Sept 30, but analysts have found reasons for cheer, buoyed by an optimistic outlook and improving margins.
For FY2024, Thai Bev reported earnings of THB27.21 billion ($1.05 billion), 0.8% lower y-o-y. Revenue, on the other hand, was up 2.2% y-o-y to THB340.29 billion, led by growth across both its beverages and food businesses.
Citing expectations of better margins across the major businesses of spirits, beer and non-alcoholic beverages, DBS Group Research analysts Chee Zheng Feng and Andy Sim believe “the best is yet to come”.
Highlighting sequential improvement in 2HFY2024, the research team at OCBC Investment Research (OIR) is betting on a better FY2025 as well. Besides further tourism growth in Thailand, the government’s efforts to boost its economy will support both foreign and domestic consumption, says OCBC. Major events, including the Olympics and UEFA European Football Championship, where beer is the popular beverage of choice while watching the action unfold, will also provide a boost.
Similarly, UOB Kay Hian’s Llelleythan Tan and Heidi Mo expect FY2025 to be “positive” with better sales volumes amid an improving domestic economic outlook and more tourists in the country. The beer segment, for one, is likely to enjoy further “upward momentum” for its segment earnings, thanks to cost efficiencies as well. ThaiBev was able not just to grow but also gain market share over the competition as it maintained its number one market share in Vietnam while increasing its domestic market share in Thailand. “Management also noted that raw material costs are expected to fall in 1HFY2025,” say Tan and Mo.
In FY2024, ThaiBev’s spirits business, no thanks to higher costs and a high base effect of FY2023, suffered a 5.8% y-o-y drop in earnings of THB20.77 billion. This stood in spite of a 0.8% y-o-y increase in sales revenue of THB120.73 billion.
See also: Bromat's unappetising dish
The company expects brown spirit volumes to extend the growth resumed in October and November and wrap up 1QFY2025 with a single-digit percentage growth. Lower ingredient costs, as ThaiBev flagged, will help the bottom line. Specifically, the company was able to buy molasses for 10% to 20% cheaper than the previous year.
Following the FY2024 earnings, DBS, OIR and RHB Bank Singapore have kept their target prices at 77 cents, 69 cents and 71 cents, respectively. PhillipCapital has raised its target price to 64 cents from 63 cents previously. DBS increased its target price estimate on Nov 12 from 69 cents previously. All the brokerages here have kept their “buy” calls.
As of Nov 26, ThaiBev remains one of the most heavily traded counters on the Singapore Exchange S68 (SGX), with 55.66 million shares changed hands. The company’s shares closed at 54 cents on the same day, 2.5 cents higher or 4.85% up since its results were announced on Nov 21. ThaiBev’s shares remain unchanged year-to-date.
See also: Delisted food companies cited low liquidity and compliance costs
IPO from spin-offs?
What has kept investors’ attention on ThaiBev is the much-anticipated Singapore IPO of its beer business, BeerCo, first flagged in early 2021 but has yet to materialise. During the results call, ThaiBev acknowledged that market conditions have become more favourable, with lower interest rates. However, while talks with its partners are ongoing, the company has yet to set a concrete timeline for the IPO.
Michael Chye, chief of ThaiBev’s beer product group, told reporters on Oct 1 that BeerCo’s IPO could take place in 3Q2025 if the group decides on the share sale by December. Thapana Sirivadhanabhakdi, CEO of ThaiBev, also told Bloomberg in October that the group “received good interest” from potential partners for the beer unit.
DBS’s Chee and Sim say the likelihood of a BeerCo IPO is “much higher than before” with the recovery in ThaiBev’s Vietnam beer business.
Ahead of ThaiBev’s results announcement on Nov 21, analysts from DBS Group Research floated the idea of yet another spin-off besides BeerCo in their Nov 12 report: ThaiBev’s relatively smaller and lower-profile food business, F&B Co, which is still a multi-market, multi-product entity estimated by Sim and Chee to be worth more than $3.4 billion, or more than 15 cents per ThaiBev share.
The stage for this move was set when the Sirivadhanabhakdi family, who is the common controlling shareholder of TCC Assets, ThaiBev, Frasers and Neave (F&N) and Frasers Property TQ5 (FPL), reorganised their stakes in these entities.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
On Sept 20, ThaiBev announced that its indirect wholly-owned subsidiary, InterBev (Singapore) (IBIL), had completed a share swap transaction with TCC Assets. Under the swap, IBIL will transfer its shares in FPL to TCC Assets, which, in turn, will transfer shares in F&N to IBIL. The transaction brought IBIL’s stake in F&N to 69.64% from 28.31% previously, while IBIL has fully divested its stake in FPL.
The transaction is accounted for as a business combination under common control as IBIL and TCC Assets share the same ultimate controlling shareholders, the Sirivadhanabhakdis.
According to Sim and Chee, following the reorganisation of stakes, ThaiBev can now consolidate F&N accounts and replace the associate line item related to FPL and F&N with Vinamilk’s pro-rated earnings contribution.
With the share swap, ThaiBev can now avoid swings in its bottom line from its stake in FPL, which, as a sprawling property firm, is obliged to account for fair value changes and also book lumpy earnings from multi-year development projects, notes PhillipCapital’s Paul Chew.
In return, the beverage group will see “more stable” profits, including Vinamilk from its stake in F&N. With F&N’s stake, NAB will account for 15% of ThaiBev’s patmi, larger than the 10% contribution from its beer segment, he adds.
At the call, ThaiBev flagged growth opportunities for F&N in Thailand and the rest of its Southeast Asia markets by tapping on its “current route-to-market,” say DBS’s Sim and Chee. “In addition, there could be margin expansion opportunities with combined raw material procurement and research and development (R&D) efforts.”
In their Nov 12 note, the DBS analysts suggest that ThaiBev’s persistently low valuation is due to investors assigning scant growth prospects as a spirits company. They thereby neglect the “attractive” better and F&B assets that can fetch a valuation premium on a standalone basis and hopefully improve shareholders’ value.
For now, despite the flat earnings, ThaiBev plans to pay a slightly higher final dividend of THB0.47, 4% higher y-o-y. This will bring its total FY2024 dividends to THB0.62 per share, equivalent to a payout ratio of 53.9%.
Chee and Sim say they are seeing “multiple positive signs” of the business turning around in FY2025. “With improved fundamentals in place, we are hopeful of potential value-unlocking corporate actions being finalised in the coming year.”
