The resilience of Thai Beverage’s spirits business was well demonstrated in 3Q13 when volumes came streaming back. The losses at its non-alcoholic beverage division narrowed, but we think it is still too early to pass judgment on the sustainability of its recovery.
We make no changes to our earnings estimates and SOP-based target price. Under our revised rating structure, we change our call from Outperform to Add. Catalysts include further corporate restructuring.
Spirits enjoy captive customers
3Q13’s performance has reinforced our belief in the resilience of the spirits business, with volume growth returning by 4% yoy The previous two quarters saw volume declines yoy as consumers adjusted to a new price reality. Although full-year volumes are now expected to decline by 2% yoy because of further excise tax increases, earnings will still grow because the change in tax calculation will bring about a blended price increase of 7-8%. We are not concerned about 3Q13’s drop in core earnings as it was due to 1) the termination of Pepsi’s contract, and 2) a 15-day halt in beer production due to ongoing excise tax negotiations. Without this disruption, beer most likely would have broken even at the EBITDA level.
Early days yet for non-alcoholic beverage
Although 3Q13 losses narrowed qoq and yoy, we think it is too early to pass a judgment on the business. A&P expenses are set to continue rising leading into the World Cup as Serm Suk seeks to establish est Cola as the market leader with football marketing. Next year will see the introduction of F&N’s 100 plus into Thailand as well. This best-selling drink in Singapore and Malaysia should take off given the lack of competition in the isotonic space and its healthy positioning.
Further corporate restructuring is a potential catalyst. FCL is set to list on the SGX in early December.
Publish date: 02/12/13