25 November 2013

Thai Beverages 9M2013 Result - Net Profit Dropped 50% Amid Revenue Slide 7%

Follow up from previous quarter result update, let me summarize the 9M2013 Result of Thai Beverages here (extracted from Thai Beverages 9M2013 Quarterly Report)

Income Statement
Balance Sheet - Part 1 (Assets)


Balance Sheet - Liabilities

Breakdown of 2013Q3 Report

The overall economy in the third quarter of 2013 indicated the sign of slowdown from the previous
quarter with respect to both private sector consumption and investment which made the manufacturing
recovery in the industrial sector still precarious. Nevertheless, exports of some products showed signs
of recovery in line with the foreign demand, such as agricultural, electronics, and automotive products.
The tourism sector has expanded robustly as a result of the high growth of tourists. Fiscal spending
accelerated for economic boost but remained below target.

ThaiBev business has been impacted by the new excise tax that was effective since 4 September 2013. 
The excise tax calculation methodology for alcohol beverage was previously imposed by either value 
of ex-factory price or volume of pure alcohol, whichever was higher. Now it is based on both value 
and alcohol content. Therefore, price of all alcohol products will be adjusted differently in accordance 
with the product types.

Overall Business 
In September 2013, the Company completed the fair value assessment of the identifiable net assets of F&N from the acquisition to comply with the accounting standards. The Company’s financial statements have been revised to present gain from purchase of investment, amounting to Baht 12,688 million, in the third quarter of 2012 when the acquisition was made. However, for the full year 2012 financial statements, there would be no impacts from this fair value assessment. 

For the third quarter of 2013, ThaiBev’s total sales revenue decreased 6.8% from previous year to Baht 35,041 million. Net profit for the period was Baht 4,030 million or 74.5% decrease due to a drop of net profit from F&N results caused by the revision of gain from purchase of investment as well as, a decrease in spirits, non-alcoholic beverage, and the food business. However, the beer business saw an improvement with a decrease in net loss.

Spirits Business 
For the third quarter of 2013, spirits sales volume increased by 4%, which mainly came from an increase in sales volume of white spirits. The sales of spirits business increased 7.4% when compared to the same period of last year. However, the net profit of Baht 4,322 million decreased by 13.2%YoY 28/32 due to the high margin base effect from an increase in selling price, while the cost of production was still based on the previous tax rate before the excise tax was increased last year.

Beer Business 
For the third quarter of 2013, sales of the beer business was Baht 6,624 million or decreased by 7.4% 
when compared to the same period of last year mainly due to a decrease in sales volume. Nevertheless, an increase in selling price, a decrease in material costs and depreciation resulted to the decrease in net loss in this quarter when compared to the same period of last year. The net loss of beer segment was Baht 246 million, or a decrease of Baht 78 million. 

Non-alcohol Business 
For the third quarter of 2013, the non-alcohol beverage business reported sales of Baht 3,542 million or decreased by 51.6%YoY mainly due to a decrease in sales of Sermsuk. At the end of 2012, the bottling agreement between Sermsuk and an international enterprise was terminated, and Sermsuk subsequently launched “est” cola and flavored carbonated soft drinks to the market nationwide. The sales volume of Sermsuk dropped by 39.8% when compared YoY.
The sales volume of Oishi saw a decrease by 11.2%. Regarding other non-alcohol beverage, the sales volume of soda water increased by 4.0%, while the sales volume of drinking water decreased by 5.1% when compared to the same period of last year.
For the third quarter of 2013, the advertisement and promotional expenses of non-alcohol business decreased. However, a decrease in sales still incurred the net loss of Baht 419 million for the non-alcohol beverage business. 

International Business 
For the third quarter of 2013, the international business had a negative growth rate of 19% when compared YoY mainly due to the lower sales of bulk Scotch whisky, Chinese Yu Lin Quan spirits, and Chang beer. 

My View (November 2013)

Thai Beverages recent result showed that it was currently in the midst of transforming its domestic market oriented strategy (Thailand) to Asean market oriented strategy (by acquiring F&N). However, we still did not see synergy here as the non-alcohol & beer division were still suffering from losses. 

It may take longer time than expected for the management to fully make use of F&N brand to penetrate more markets for its own branded items such as Chang beers & Oishi. While I believe that it may not seem possible to beat Pepsi in Thailand market (as Pepsi is an international market), I hope that the overall non-alcohol business could be strengthened again. 

Nonetheless, ThaiBev still enjoy a rather healthy cash flow due to its dominance in Spirit business. I hope that the management can improve other division so that it can regain confidence from investors. 

Below is the current market trend of Thai Beverages:

Source: Maybank KE Chart

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