In good spirits
▊ Spirits volume rebounded this quarter, demonstrating the resilience of consumer demand. Non-alcoholic beverage losses narrowed but we think that it is too early to pass judgment on this business. 3Q13 EPS is broadly in line, at 23% of our full-year estimate and consensus numbers. 9M13 forms 71%. We expect the spirits business to post a stronger performance in 4Q, buoyed by ASP increases. But we are lowering our estimates by 4-5% to account for higher losses for non-alcoholic beverages. We retain our Outperform call while raising our SOP target price as we roll it over to CY14. Corporate restructuring is a potential catalyst.
This is a decent quarter for Thai Bev, with the key takeaway being a pick-up in spirits volumes, as expected, by 4% as consumer demand returned following the acceptance of a new price reality. This vindicates our belief in the resilience of this business. But full-year volumes are now expected to decline by 2% instead of holding steady as the implementation of the new tax calculation method in September will bring about further price increases, estimated to be a blended 7-8%. Core earnings drop of 15% yoy looks bad but is not as it is due to 1) termination of Pepsi’s contract and 2) a 15-day halt to beer production due to ongoing excise tax negotiations. If not for the disruption, the beer business may have broken even at the EBITDA level.
Still early days for non- alcoholic beverage
Losses narrowed this quarter, both yoy and qoq, due to lower A&P expense for both est Cola and Oishi. The former is due to a timing issue while the tapering of the promotional war with Ichitan explains the latter. Est Cola sales declined 55% qoq but new products tend to see peak sales during launch and taper off after that. Serm Suk plans to introduce F&N’s 100Plus to Thailand in 3Q14.
Further corporate restructuring is a potential catalyst. FCL is set to list on the SGX in early December.