Thai Beverage - Alcohol payback

Earnings headline miss was due to lower associates from F&N paying a breakup fee in 1Q. The alcohol business suffered from temporary de-stocking by wholesalers. Non-alcoholic beverage synergies are starting to appear as this business prepares to dominate the region.

1Q was below at 17% of our estimates and 16% of consensus. We adjust our FY13-15 estimates by -6/3 % on lower gross margins and slightly higher associate earnings. Our SOP target price falls slightly. We maintain our Outperform call. Catalysts to come from corporate restructuring.

1Q review
The core business suffered slightly from spirits wholesalers de-stocking their inventory. Wholesalers loaded up on inventory before the excise tax hike last year. This inflated 4Q spirits volume and 1Q volumes (-4% yoy) was payback time. This phenomena is temporal. 

Similarly, beer volumes declined as wholesalers de-stocked following strong buying before Acha beer’s price was hiked. Beer EBITDA broke even due to falling raw material prices. 

Non-alcoholic beverages posted an operating loss, but growing pains are to be expected. A&P remains high as Serm Suk recently rolled out est cola, while the termination of energy drink products last year lowered revenues. Oishi is almost back to full production capacity, with the sales volume increasing 48% yoy.

Laying the foundations for beverage dominance
We are beginning to see synergies from Serm Suk and F&N. Oishi’s entry into Malaysia was faster than expected and will ride FNH’s distribution network. In Thailand, Oishi is selling returnable-bottle drinks, exclusively to on-premise establishments, through Serm Suk.

S$3.28 cash distribution 
Thai Bev will receive S$1.35bn from F&N’s proposed capital reduction. Shareholders should not expect a special dividend as debt repayment is more likely. We expect net gearing to fall from 1.1x to 0.7x. Cash will be paid on or about 31 Jul 2013. (Read Report)

Read Related Reports
ASEAN consumer - Burma beer beckons
Wednesday, 22 May 2013
- Standard Chartered Equity Research
Thai Beverage - Lining up the drinks
Monday, 6 May 2013
- Standard Chartered Equity Research

Source : CIMB Research

Labels: , ,