Why ThaiBev's non-alcoholic beverage business could still disappoint in 2H

Will losses escalate further?

According to CIMB, it expects Thai Bev to report a stronger 2H, thanks to an uptick in spirits sales volume. The non-alcoholic beverage business is unlikely to turn a profit yet but the quantum of loss depends on the intensity of both Oishi’s and Serm Suk’s promotional activities.

Here's more:

What We Think 
We expect Spirits sales volume to increase qoq in 3Q as the destocking effect in the last two quarters should be over.

3Q spirits sales volume is also expected to rise yoy because of the low base effect as the corresponding quarter last year saw the implementation of the hike in excise tax in August. 

Spirits sales volume declined by 8% in 1H13, and we expect a gradual pick-up in 2H13, resulting in flat yoy volume growth in FY13.

The impending submission of wholesale prices for the revamped computation of excise taxes might complicate matters, but we understand that the potential impact to consumers at this stage is likely to be a muted 1-2% increase in ASP. 

The non-alcoholic beverage segment is not likely to turn a profit yet. We think that the key to narrowing losses at this stage lies with Oishi and the intensity of its promotional war with Ichitan. The losses will narrow if the price wars taper. The intense green tea battle will enter its fifth straight quarter in 3Q and could only ease after Ichitan completes its listing, which is rumoured to be at end-2013. 

Further losses at Serm Suk are expected as management continues to spend heavily on A&P to build est Cola’s market share. 

What You Should Do 
We maintain our Outperform call. We see catalysts from further corporate restructuring.

Specifically, Thai Bev’s plan to sell its 28.6% FCL stake, possibly to TCC, and for TCC to communicate its plans over their 61.7% stake in F&N. Investors should stay invested.