Aug 16, 2013

Thaibev 1H13 results, a sober look at the business

Here are some snapshots of the 1H13 results;

A. Dividend
For Interim 2013, Thai Bev has just went CD and announced dividend per share of 0.14 baht, unchanged from 2012. Earnings per share is 0.33 baht, down from 0.37 baht in 2012. Dividend Payout ratio has increased from 38% in 2012 to 42% to maintain the same amount of dividend.

B. Financial Highlights & Business Segment Review
Sales Revenue, 1H13: -7.3% from 1H12.
Net Profit (ex. F&N), 1H13: -13.5% from 1H12.

Margin (include F&N);
EBITDA, 1H13: 17.7% from 17.8% 1H12.
Net Profit Margin, 1H13: 11.0% from 11.7% 1H12.
-1H12 does not have contributions from F&N.
-Finance costs of 806 mil baht will be reduced once Thai Bev receives cash from F&N capital reduction.
-In 1H13, F&N boosted EBITDA margin from 15.8% to 17.7%, and Net Profit Margin from 10.1% to 11.0%.
If we ignore looking for early signs of business synergy, the acquisition of F&N was able to bolster Thai Bev's weak Q2 results. It is unavoidable for the spirits and alcoholic beverages to hit a bump the past 1H, and the introduction of other beverages to broaden its product portfolio still makes sense.

As usual, the devil is in the details...

Spirits are still the main source of profits and 2/3 of sales, and the other business segments have yet to show any positive contribution, with the exception of food. Food segment once again turns in marginal profits, maintaining its performance from the first quarter. Beer and Non-alcoholic beverages take up about 1/3 of sales but are loss making and costly businesses which Thai Bev has repeatedly pumped money into advertising and promotion to try to gain market share. Oishi needs to scale up to be able to meaningfully take some load off Spirits.

Looking past short term comparisons, 1H13 has still managed to grow Sales Revenue over 1H12 at +1.2%, which is reasonable considering the nature of business. EBITDA and Net Profit Margins have slipped to 25.0% and 18.3%, from 26.9% and 19.4% respectively.
Raw material costs take up only 6.0% of total revenue, thus I am sure the only risks it faces are excise taxes and sales challenges.
The decrease in earnings was due to a falling gross profits and increased idle and staff costs, despite a decrease in corporate income tax at 20% from 23% in 2012 previously.

Sales Revenue contracted -2.5% while the company has managed to reduce cost of goods sold to 86.1% of revenue frm 87.7% in 1H12.
EBITDA margin was unchanged at 0.7% of revenue while the segment recorded a Net Loss margin of -1.5% of revenue.
Decrease in earnings was due to increased advertising, promotion and staff costs and decrease in depreciation.
Among costs to revenue, Packaging cost stood out like a sore thumb with 14.3% in 1H13. This appears to be an area which Thai Bev can start from to drive efficiency and cost savings.
Positive sign that gross profit has increased in 1H13, however as Thai Bev has previously outlined its commitment to continue an advertising and promotion blitz in 2014, I expect EBITDA to be suppressed again for this year.

Excise taxes on Thai Bev's alcoholic beverages;
-White spirits: 120 baht to 150 baht
- Compounded spirits: 300 baht to 350 baht
- Brandy: 48% to 50% of ex-factory price
- Beer: No change
Thai Bev was able to pass on the tax increase directly to its customers.

Non-alcohol Beverages
Sales Revenue is down -40.6% in 1H13 from 1H12, due to the termination of Serm Suk's partnership with PepsiCo which I have discussed in the Thai Bev 1Q13 post.
Company has managed its costs well although advertising and promotion expenses have increased. This is necessary to promote the new drinks under Serm Suk,
The efforts have paid off with est commanding 15-19% market share while shattering PepsiCo to 15% from 48% previously with Serm Suk. Est cola, with a hint of root-beer flavor, is now readily available on almost every corner of Thailand. It also comes in the popular glass-bottled form.
EBITDA and Net Profit margins are negative at -1.8% and -7.8% and I shall wait keenly to see if all these investments turn to profits in the coming quarters.
Read more here;

Sales Revenue jumped +16.0% in 1H13 compared to 1H12 due to an increase in branches and sales prices.
Costs have been kept down remarkably well to 58.9% of revenue, previously 62.1%.
EBITDA and Net Profit Margins have increased likewise, at +58.9% and 183.3%.
Oishi has done the right things this year as they continue ramping up their business.

International Business 1H13 update
Decrease in sales -19%, not much to surprise here with the effects from 1Q13 weighing down on sales from Scotch whiskey and YLQ spirits.
Positive is the +7% increase in Sales Revenue from Asia ex. China attributed to Chang Beer in Myanmar.

C. Balance Sheet
1H13 recorded a slight decrease in cash and accounts receivables. Loans have also decreased and the gain from partial divestment of Oishi has been recognised.
Thai Bev also performed some debt repayment which reduced long term loans by almost 7%.

Since the announcement of results, Thai Bev shares have took a hit and spiralled down further to about 53 cents. According to CIMB,  Thai Bev is almost the cheapest among the regional and global brewers, with the exception of Kirin. It is also cheaper than its F&B peers in Singapore.

Short term punters or technically inclined traders, I'm sure have already parted ways with this share along its downtrend and looking at it today, it should be at or near the lower band of the downtrend channel.
For those with faith in the business direction of this company, the depressed price of Thai Bev presents another opportunity to increase exposure. We have to be realistic in our expectations of Thai Bev as it is a F&B business, not an oil/gas explorer, for example.

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