Spirits will pick up in 2H
Another challenging quarter for the spirits business as expected. However, wholesalers destocking is almost over and volumes should pick up in 2H. Est cola reported encouraging numbers.
2Q13 was in line at 26% of our estimates but is slightly below consensus at 23%. 1H12 forms 44%. We are tweaking our estimates downwards slightly on lower non-alcoholic beverage earnings. Our SOP target price comes down accordingly. Maintain Outperform with catalyst to come from corporate restructuring
3 events dominated this quarter: 1) larger than expected pull back in Spirits volume (-11% yoy) which offset ASP gains of about 10% 2) non-alcoholic beverage losses widening because A&P expenses increased further to protect market share 3) large unrealised forex gain of Thb 1bn relating to Singapore dollar position.
Although it appears that earnings this quarter was boosted by the large unrealised forex gains, the impact on 1H earnings is cancelled out by 1Q’s unrealised forex loss of Thb 583m. This was a contributory factor to 1Q’s earnings miss. Beer broke even on EBITDA level due to lower raw material costs.
Spirits decline in volume should reverse in the second half of the year as management observed that de-stocking by wholesalers is almost over. Furthermore, management is confident that if the rumoured cut in rice subsidies come to pass spirits will not be adversely affected.
Est Cola doing well
1H’s sales of Thb 3.7bn is on course to meeting Thai Bev’s Thb 8bn target. est Cola now commands an estimated 15% market share. This are encouraging signs that est Cola could replace loss profits from expired Pepsi contract once the transitory phase is over.
Thb 14cts of interim dividends was declared. Share price only values the Spirits business today and does not take into account non-alcoholic beverage assets.