Thai Bev to lose fizz amid profit sustainability woes

Spirits and beer rose 9% and 3% but volume growth ahead remains uncertain.

According to Maybank Kim Eng, core improvements yes but sustainability is a question: THBEV’s positive development on margins and volumes is colored by inventory stocking ahead of the price increases in the spirits division. The price increase in turn is an ante move on the expectation of the hike in excise taxes for spirits.

Here's more from Maybank Kim Eng:

Price hike, inventory stocking: Spirits saw an 11%Y/Y vol growth in 1Q12 mainly from inventory stocking on the browns ahead of the Mar price increase. In 2Q12 vols rose 9%Y/Y, this time mainly on inventory stocking in whites ahead of the July price increase. In each of the past two quarters spirits saw an ASP rise of 4% avg. The price increase is implemented in anticipation of the hike in excise taxes; an item that accounts for ~48% of the unit price.

The management believes that hike on the excise tax will be implemented shortly. They do not know by how much but believes that the price increase that has been undertaken will have covered the hike. At this point volume growth going forward will be uncertain though the management guides a single digit growth in 2013 is more reasonable. If so – that would be a come down from the growths we have seen in the past two quarters.

Beer is still weak and improvement will still be slow: The Thai beer market remains very competitive and the 5% vol growth in 1Q12 3% in 2Q12 are already a positive sign. Its market share in beer has inched up a little to 35% in 2Q12 vs 33% in 2Q11. However, losses could continue because at these vols, 150-170mn liters, the beer division is still far from the breakeven level.

Raw material spike not an issue, mgt advices: The margin improvement in the spirits segment was partly due to the advantageous price of molasses, averaging at Bt3/kg vs Bt5/kg last year. Guidance is for molasses to go cheaper on good sugar cropping in Thailand. As for the beer division, the management is confident that the prices of malting barley will not escalate along with corn. Dr Pisanu was advising that the malting barley track the wheat not corn prices so the recent spike in tandem with corn is an exaggeration more so if considering that Australia expects a bumper crop (in by 1Q13) similar to Europe. He expects the price of malting barley to correct. As of now, THBEV has inventory that could last until 1Q13.