Despite Thai Beverage Y92 - &rsquo s (ThaiBev) underwhelming performance in FY2023, which ended on Sept 30, 2023, there are optimistic indicators for the F& B conglomerate this year, based on the anticipated increases in consumer spending in Thailand, Vietnam and Indonesia. 

 

On Nov 22, 2023, ThaiBev reported a 9% y-o-y drop in earnings of THB27 billion ($1.02 billion) for FY2023 despite its higher revenues of THB279 billion, 2% higher y-o-y. The lower earnings were attributed to the higher-than-expected marketing and raw materials costs.

 

ThaiBev operates in three key sectors: Alcoholic beverages, non-alcoholic beverages and other businesses. Brands within the group include popular Thai beer Chang Beer, 100Plus and drinks under Fraser & Neave (F& N). The group also boasts its line of spirits, featuring Old Pulteney single-malt scotch whisky and Hankey Bannister blended scotch whisky. The portfolio also includes rum, vodka, gin and Chinese wines.

 

The company considers the increased mar­ keting spending necessary. By establishing Chang Beer as a strong competitor to the cur­ rent market leader Singha &mdash brewed by Boon Rawd &mdash ThaiBev aims to gain more significant pricing power.

 

While the group&rsquo s share price has declined by 2.78% year to date to 52 cents and is down by 23.91% on a y-o-y basis, it holds a significant market share of 35% to 40% in Thailand and Vietnam and over 74% of the Thai spirits market. Additionally, the group maintains a sales volume share of over 90% in its regional markets.

 

In his report on the F& B sector dated Jan 9, RHB Bank Singapore analyst Alfie Yeo notes that consumer confidence in Thailand for November 2023 recovered to an all-time high of around 60 points since the Covid-19 lockdowns, although it remains shy of the 70 points seen before the pandemic. &ldquo Both government stimulus and tourist arrivals have driven Thailand&rsquo s consumer confidence in recent months,&rdquo he writes.

 

Boosting tourism

 

While Thailand has since lowered its GDP growth projection to 2.8% from its earlier forecast of 3.2%, the Thai government is still seeking to boost its tourism sector through several initiatives.

 

At the Asean Tourism Forum 2024, the Tourism Authority of Thailand (TAT) said it expects to see 35 million foreign arrivals and 200 million domestic trips annually. TAT has also set an overall revenue target THB3 trillion in the best-case scenario. The figure comprises THB1.92 trillion from international tourists and THB1.08 trillion in domestic spending.

 

The country also introduced a visa waiver for Chinese tourists last September to boost arrivals. Despite falling slightly short of the 2023 target, hopes rose as Thailand and China agreed to permanent visa waivers from Jan 28.

 

Meanwhile, Thailand has extended the operating hours for entertainment venues, clubs, and karaoke bars in popular destinations like Bangkok, Pattaya, and Phuket on Nov 28 last year. They can now remain open until 4 am, and these regulations took effect on Dec 15, 2023.

 

On Jan 2, the Thai cabinet approved a reduction in local alcohol tax until the end of this year to boost tourism and consumption. The taxes on spirits were eliminated and wine taxes were reduced to 5% from 10%. Although the tax cuts primarily apply to &ldquo home-based&rdquo fermented alcoholic beverages and not the entire range, DBS Group Research suggests that these measures and efforts to promote tourism have generated a &ldquo positive buzz.&rdquo

 

In the meantime, the Bangkok Post reported on Feb 5 that the Thai government may end the afternoon ban on alcohol sales to stimulate tourism. A decision is expected to be reached by Feb 15 and could be put in place by April, in time for the annual Songkran festival.

 

Steady dividend growth

 

Since its listing in May 2006, ThaiBev has been distributing dividends half-yearly. While FY2017&rsquo s dividend payout peaked at THB0.67, the group&rsquo s dividends have grown steadily since its 41.79% y-o-y drop in FY2018 to THB0.39. As of FY2023, ThaiBev&rsquo s total payout stood at THB0.60, unchanged y-o-y. Given the drop in earnings, the payout ratio for FY2023 was up at 55% from FY2022&rsquo s 50%.

 

The group&rsquo s gross profit margins have remained fairly steady within the 25% to 30% range since its founding in late October 2003, likely due to the inelastic demand for its products.

 

Since going public, the group has also reported positive operating cash flows (OCF) and free cash flows (FCF), indicating its measure of profitability, yields and solvency.

 

Despite the lacklustre share price over the past few years, analysts remain positive on ThaiBev&rsquo s prospects. In its Jan 3 note, the DBS team believes that ThaiBev is trading at &ldquo attraction valuations&rdquo at around 12 times FY2024 P/E, at &ndash 1.5 standard deviations (s.d.) from its 15-year historical average.    

 

In its Jan 3 note, CGS-CIMB Research has estimated the group&rsquo s net profit to come in at THB29.12 billion, driven by its strength in spirits.

 

In his latest report dated Nov 24, 2023, PhillipCapital analyst Paul Chew, on the other hand, is less optimistic about ThaiBev&rsquo s prospects following its FY2023 results, which were slightly below expectations. However, like the rest of his peers, Chew believes a macro turnaround will benefit the group. Specifically, the analyst is more bullish on ThaiBev&rsquo s spirits revenue from the normalisation of white spirits volume, price increases and a higher mix of brown spirits.

 

A much-anticipated move is the planned separate multi-billion listing of ThaiBev&rsquo s beer business, which was postponed twice. The company can proceed with the listing whenever market conditions are deemed favourable.

 

ThaiBev announced several leadership changes on Jan 10, which included naming Thapana Sirivadhanabhakdi the director and group CEO of ThaiBev, a redesignation from his current role as ThaiBev&rsquo s director, president and CEO. Sirivadhanabhakdi was also made vice-chairman of the executive committee. 

 

From June 27, upcoming changes will strengthen the group&rsquo s operations, enhancing synergies and efficiency in key markets like Thailand, Vietnam, Myanmar, Malaysia, and Singapore.