Why ThaiBev is unfazed by excise tax increase, rice subsidy cut

Spirits business will remain intact.

According to CIMB, recent fears that the impact of an excise tax increase and a cut in rice subsidies on farmers’ incomes will affect Thai Bev’s spirits business are unfounded. Rice farmers constitute a small portion of the white spirits customer base and any drop in volumes from tax hikes is temporal.

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We are not worried that the excise tax hike and any cuts in rice subsidies will affect spirits sales. Yes, volumes may be flat or could decline slightly.
As consumers adjust to a new price reality, this will be temporal and unlikely to be large enough to wipe out ASP increases (est. 8% in FY13).

Comparing with the most challenging period for spirits in the past(2005-2007), a 6%-decline in volume only came through when two large excise tax hikes of more than 50% took place and there was flooding in rural provinces.

Yet, revenues still rose 3%. 2012’s excise tax hike of 15-25% is hardly painful. The fear that a decline in farm income will impair white spirits sales is also speculative, in our view.

Unskilled labourers from other labour-intensive industries, such as manufacturing, motor vehicle repair and construction,outweigh agriculture’s three to one! If any, consumption should increase because these consumers will have benefited from the rise in minimum wage put in place in 2012-13.

At the end of the day, spirits revenue has never had a down year in the past decade.

Thai Bev enjoys an effective monopoly and consumers eventually return because they have little other choice. History says so, not just us!

Restructuring risk low. Minorities hold the key to any proposed transaction because TCC and Thai Bev, as related parties, cannot vote. As long as F&N is listed, selling out its properties on the cheap to TCC can be ruled out.