THAI spirits maker Thai Beverage has posted a first quarter net profit of 2.91 billion baht (S$122 million), down 62.3 per cent from the same period a year earlier.

The fall was largely due to non-recurring business acquisition costs of 2.35 billion from the four acquisitions it completed in the first quarter.

Chief among these, ThaiBev and a Vietnam partner paid more than 109.9 trillion dong (S$6.53 billion) for a 53.59 per cent stake in Saigon Beer-Alcohol-Beverage Joint Stock Corp, or Sabeco. Sabeco' s results will be included in ThaiBev' s from the second quarter onwards.

Net profit excluding the finance costs for Sabeco and other non-recurring expenses was 29.3 per cent lower at 5.48 billion baht. This translated into a 32 per cent dip in earnings per share from the same period a year ago to 0.21 baht.

Otherwise, ThaiBev' s earnings per share was 0.12 baht, down 61 per cent.

Domestic alcohol beverage sales was also affected by destocking of sales agents' inventory.

Spirits sales revenue dipped 5.8 per cent despite an increase in sales volume due to a change in product mix, and net profit slumped 21.1 per cent to 4 billion baht.

Beer sales dipped 4 per cent while net profit slumped 29.7 per cent to 886 million, as advertising and promotion expenses as well as staff costs also rose.

Although total sales volume of beer was 206.8 million litres, a decrease of 6.2 per cent, ThaiBev said it maintained its share of the beer market.

Sales of non-alcoholic beverages business rose 5.8 per cent, narrowing the segment' s net loss to 227 million baht, a 5 per cent improvement from a net loss of 239 million baht.

The food business reported growth in sales revenue and improvement in margin, driven by contribution from the acquisition of KFC stores.

Food revenue jumped 42.3 per cent and net profit surged from 5 million baht a year earlier to 109 million baht.

ThaiBev said it obtained bridging loans from various local and foreign banks to fund the acquisitions in the first quarter. It will manage to take out short term debts in the appropriate time, it added.

The counter closed unchanged at 91 Singapore cents on Wednesday before results were announced.

 

SINGAPORE (Jan 23): Nomura Research is starting coverage on Thai Beverage (ThaiBev) with a &ldquo buy&rdquo recommendation and a target price of $1.13, representing a potential upside of more than 20% from its current price.

According to Nomura lead analyst Thanatcha Jurukul, ThaiBev&rsquo s earnings are expected to recover to 12% year-on-year in FY18, from -2% in the FY17 ended September. Over the next three years, earnings are forecast to grow at a compound annual growth rate (CAGR) of 9%.

&ldquo We expect to see recovery in beer sales after the end of the one-year national mourning period in Thailand,&rdquo says Jurukul.

At the same time, the FIFA World Cup competition in June-July is also expected to drive improving beer sales.

&ldquo We note that major football events can boost beer consumptions as Thai football fans have a culture of drinking beer while watching the football matches. The major football events like FIFA World Cup and UEFA European Championship (EURO) have track record of driving the industry&rsquo s and THBEV&rsquo s beer sales,&rdquo the analyst adds.

In addition, Jurukul notes that many Thai could soon be completing their loan repayments from Thailand&rsquo s first-car scheme, a populist policy that commenced in late 2011 which offered tax rebate to each buyer of a car priced less than 1.5 million baht.

The scheme resulted in a spike in car sales in 2012-2013, with car loan terms in Thailand normally for 4-5 years.

&ldquo An immediate increase in the monthly financial burden from car loans pressured consumer spending,&rdquo says Jurukul. Conversely, the completion of loan repayments should see the return of consumer spending and boost beer consumption.

Further, Jurukul says ThaiBev&rsquo s recent acquisitions &ndash Grand Royal Whisky, Saigon Beer-Alcohol-Beverage Corp (Sabeco), and the KFC franchise &ndash are &ldquo good moves to support sustainable growth amid the mature spirits business&rdquo from a long-term perspective.

&ldquo We analyse ThaiBev&rsquo s recent M& As and believe that they are good investments, despite the high acquisition prices,&rdquo says Jurukul. &ldquo We also note a good track record of synergies among ThaiBev&rsquo s existing businesses.&rdquo

Among the beverages categories, Jurukul believes that there is a better growth outlook for beer, on the back of successful marketing initiatives by major breweries as well as a more urbanised lifestyle.

On the other hand, he sees a sluggish market growth trend for products such as spirits, juice, energy drinks, and ready-to-drink (RTD) tea.

While ThaiBev&rsquo s non-alcohol beverage business remains loss-making, Jurukul notes that it is on an improving trend.

As at 3.01pm, shares of ThaiBev are trading 1 cent higher at 93 cents, implying an estimated price-to-earnings ratio of 19.7 times and a dividend yield of 2.7% for FY18.