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Thai Beverage - Explaining the 4Q cost bump

Shared By Stock Fanatic on Sunday, March 1, 2015 | 1.3.15

Thai Bev reported seasonally strong 4Q results that missed expectations because of higher operating costs for both spirits and beer

The two most pertinent questions we had when we went through yesterday’s results were: 
1) why costs spiked up and 

2) what are the plans for product launches to reap synergies in non-alcoholic beverages. 

We raise FY15-17 EPS by 2-3%, lowering costs. We maintain our Add rating, with an unchanged SOP-based target price. Current catalysts for the stock include decent topline trends, a 4Q dividend surprise and benefits from the rollout of regional expansion plans.

What Happened
Management held a post-results briefing.

Questions answered included:
1) why operating costs for spirits and beer spiked up in 4Q14;

2) state of the spirits and beer markets and

3) planned product rollout across markets.

What We Think
We heard the explanation for costs and take the view that higher 4Q costs do not represent a trend. Strong 4Q spirits sales did not translate into higher spirits EBITDA (see Fig 1), partly because of continued A&P in spirits, but specifically, also due to higher staff bonus provisions booked in 4Q after 2014 turned out to be better than budgeted. This implies that the spirits EBITDA margins should recover in 1Q. FY14 blended selling prices for spirits have trended lower because the mix has shifted towards white spirits. Its white spirits sales were resilient in 2014, and it was the brown spirits volumes that suffered, particularly in the on-premise channels. Management quoted AC Nielsen data that showed that Jan 15 (+2% yoy) brown spirits volume growth turned positive after contracting sharply (local brown spirits -8% yoy, foreign brown spirits -22% yoy) over 2014. We read that as a positive.

For beer, Chang export volumes grew 30% yoy in 2014 and helped Thai Bev’s overall beer volumes to shrink only 2% yoy vs. Thai domestic beer volume declines of 6-8%. AC Nielsen data reported that Jan 15 beer volumes have since recovered to +5% yoy. Overall, Thai Bev maintained its beer market share in 2014. There were some promo expenses incurred in 4Q to clear some old stock but nothing to suggest intensified competition and heightened A&P spend. Lastly, on product plans, 100Plus was launched in Thailand, and the initial sales traction is promising. Brands that are due to be ported into Malaysia include est cola. We think that 2015 could be a busy and interesting year.


Technical Analysis
Daily Chart
What You Should Do
We keep our Add rating on the stock. (Read Report)

Read Related Reports
Thai Beverage PLC - Dividend surprise on lower gearing achieved‏
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Thai Beverage - Analyst Briefing Key Takeaways
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- Phillip Securities Research
Thai Beverage Public Company - Surprise jump in final DPS
Friday, 27 February 2015
- DBS Group Research
Thai Beverage - Seasonal strength and dividend
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- CIMB Research

Source : CIMB Research


Posted on Sunday, March 1, 2015 | 1.3.15
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