Excerpts from UOBKayHian report

Thai Beverage (SGX: Y92)

• Thai Beverage (THBEV) released its 1QFY24 business update whereby overall revenue fell 5.9% yoy, dragged by the beer segment.
• However, 1QFY24 EBITDA increased 1.9% yoy on more efficient A&P spending along with lower raw material costs. The spirits segment continues to benefit from a better product mix while the beer segment faces a weak macroeconomic outlook.
• In our view, THVBEV is trading at an attractive -2SD to its mean PE.

Maintain BUY with the same SOTP-based target price of S$0.70.

Muted 1QFY24 in line with expectations

Thai Beverage (THBEV) provided its 1QFY24 business update whereby overall revenue fell 5.9% yoy while overall EBITDA eked out a slight gain of 1.9% yoy, forming 28% and 34% of our full-year forecasts respectively.

The fall in overall 1QFY24 revenue was solely dragged by the beer segment as segmental beer revenue dropped sharply by 14.0% yoy.

However, 1QFY24 overall EBITDA was supported by better margins across the spirits, beer and non-alcoholic beverages (NAB) segments,  driven by better cost management and efficient advertising and promotional (A&P) spending.

As a result, 1QFY24 overall EBITDA margins grew 1.4ppt yoy. On a qoq basis, 1QFY24 overall revenue (+20.4% qoq) and EBITDA (+32.4% qoq) were higher sequentially, given that 1Q is THBEV’s seasonally strongest quarter.

Robust balance sheet from continued deleveraging

Backed by strong operating cash flows, THBEV’s gearing ratio (Net interest bearing debt to equity) has remained stable at 0.65x in 1QFY24 (4QFY23: 0.65x) while its net interest bearing debt to EBITDA ratio improved slightly from 3.08x in 4QFY23 to 2.98x in 1QFY24.

Beer: Weak performance, supported by cost savings

On the back of a weak economic recovery in both Thailand and Vietnam, 1QFY24 sales volumes fell by 15.0% yoy.

This resulted in the beer segment reporting sharply lower (-14.0% yoy) revenue but slightly higher EBITDA (+2.1% yoy) in 1QFY24, forming 30% and 28% of our full-year forecasts and were in line with our expectations.

We reckon that the increase in EBITDA was largely due to more efficient A&P spending, coupled with lower raw material prices that protected segmental profitability, driving 1QFY24 EBITDA margins slightly higher by 1.8ppt yoy.

Near-term recovery remains unlikely

As mentioned in our previous update, given a new domestic entrant in 1QFY24, we reckon that segmental margins would likely stay muted moving into 2QFY24 as THBEV would likely keep its A&P spending elevated to defend market share.

Furthermore, against a weak macroeconomic backdrop, the overall beer market remains soft in both key markets Thailand and Vietnam, implying that a sharp V-shaped recovery in 2QFY24 is unlikely, in our view.

Potential upside may come from further efficient A&P spending that may support/boost margins.

Valuation/Recommendation

Maintain BUY with the same SOTP-based target price of S$0.70. We still reckon that THBEV remains attractively priced at -2SD to its five-year mean PE, backed by favourable tailwinds and a decent 4.5% FY24 dividend yield.

You can find the full report here and the company website here.