2Q15 was not as impressive a quarter as 1Q. With a sports tax implemented at end-1Q and effects of channel stockpiling boosting 1Q15 alcohol sales, 2Q was payback time. Spirits’ and beer’s 2Q sales performance and EBITDA was not strong, but this was expected. On a 1H15 run-rate basis, profitability still tracked ours and Street expectations, i.e. in-line. 1H15 net profit made up 49%/51% of ours and consensus estimates. This was achieved albeit on the back of some (Thb446m) non-core gains from Serm Suk. We maintain our estimates, SOP target price and our Add rating. Catalyst for the stock comes from sustained turnaround in beer and upside surprises from non-al.
Payback effect for alcohol
2Q spirits sales was 4.7% lower yoy, as volumes shrank 3.4% yoy. The basis for comparison was not the most accurate as 2Q15 was a payback quarter, after channel stockpiling in 1Q15. Sprits’ gross profit (-2.4% yoy) and EBITDA (-6.7% yoy) was similarly lower, on the back of lower sales. The payback effect was evident in beer too. 2Q beer sales volume was 4% lower yoy, though sales value was flat, after an adjustment in sales price. Beer EBITDA (+67% yoy) growth reflects the closing of Chang’s price gap with competitors. On a qoq basis, beer did not show the strong growth seen in the previous two quarters though. Overall, it was a satisfactory quarter for the alcohol businesses.
Non-al helped by new products,
2Q15 non-alcoholic beverages (non-al) sales grew 2.4%, mainly from the effect of higher sales volume of drinking water and the launch of new products, 100Plus and Jubjai. Outside of water and new products, trends were less encouraging. There was a decrease in sales volumes of carbonated soft drinks (est cola), ready to drink tea and herbal drinks, suggesting a difficult market. Although non-al EBITDA turned positive this quarter, this included non-core gains on property sales from Sermsuk - nothing to get excited about. Excluding non-core gains, non-al net losses (2Q:-Thb608m vs 1Q:-Thb374m) was actually wider on increased A&P expenses, due to the launch of new products.
Gradual recovery in Thai economy
Management guided that Thailand’s tourism sector has seen a sharp increase in the number of tourist arrivals, though private consumption trends and farm income are not positive. Guidance is summarised as a slow recovery. (Read Report)
Source : CIMB Research