Demand Dips And Costs Will Cripple Spirits Yet Efficiency Lifts

Key Takeaways

• Economic weakness and rising health consciousness are suppressing demand in core segments, risking stagnant revenue and loss of market share.
  
• Expansion into premium and non-alcoholic products faces execution risks, with slow growth and weak associated companies weighing on earnings.
  
• Weak demand, rising costs, and intensifying competition are pressuring profits and margins, while limited pricing power and economic uncertainty challenge sustained earnings growth.

Catalysts

Produces and distributes alcoholic and non-alcoholic beverages, and food products in Thailand, Vietnam, Malaysia, Myanmar, Singapore, and internationally.

• While Thai Beverage stands to benefit from increasing disposable incomes and urbanization in Southeast Asia, persistently poor consumer sentiment and economic weakness in both Thailand and Vietnam are suppressing demand, particularly for the core spirits business. This trend could lead to stagnant or declining sales revenue in key segments.
  
• Despite operational gains in cost management and production efficiency for the beer segment and input cost relief on raw materials expected in coming quarters, the company faces persistent pressure from rising health consciousness and substitution toward non-alcoholic alternatives, posing a longer-term risk to revenue growth and market share.
  
• Although strategic expansion into premium and value-added products, as well as innovation in non-alcoholic and functional beverages, is underway, execution risk remains significant. The slow ramp-up in new ventures (such as the AgriValley dairy project), combined with the underwhelming performance of associated companies like Vinamilk, is likely to weigh on consolidated earnings for several years.
  
• While regional diversification and international expansion offer potential for revenue stabilization, growth has been slow and market share losses to competitors (especially in Vietnam's beer market) raise concerns about the company's ability to capitalize on consolidation opportunities and protect profitability in increasingly competitive industry conditions.
  
• Even though input costs for beer and some packaging materials are trending downward, ThaiBev remains highly exposed to price volatility in agricultural commodities and is limited in its ability to pass on cost increases through price hikes due to weak economic conditions, which could continue to pressure net margins and impede recovery in overall profitability.

Thai Beverage Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Thai Beverage compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Thai Beverage's revenue will decrease by 0.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.8% today to 8.6% in 3 years time.
• The bearish analysts expect earnings to reach THB 30.2 billion (and earnings per share of THB 1.18) by about September 2028, up from THB 26.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.8x on those 2028 earnings, up from 10.8x today. This future PE is greater than the current PE for the SG Beverage industry at 10.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

Thai Beverage Future Earnings Per Share Growth

Risks

• The spirits segment, Thai Beverage's main profit driver, saw both declining sales volume and a sharp 10.3 percent drop in net profit due to weak domestic consumption and higher marketing and input costs, indicating rising vulnerability in revenues and net margins if consumer trends continue to shift away from spirits.
  
• Market slowdown and low consumer confidence in both Thailand and Vietnam are weighing on beverage demand across segments, thus potentially causing stagnation or declines in consolidated group revenues and overall earnings growth if economic conditions do not improve.
  
• Competition in the key Vietnamese beer market is intensifying, with evidence of market share loss to global peers like Heineken and promotional tactics from competitors, raising the risk of margin compression and revenue deceleration in an important growth market.
  
• Cost pressures from rising raw material, labor, and marketing expenses are negatively impacting profitability across multiple business lines, as seen in significant profit declines in nonalcoholic beverages and food, thus threatening net margins and making sustained earnings growth uncertain.
  
• The company's ability to implement price increases to offset inflationary pressures is limited by weak consumer sentiment and challenging economic environments, constraining revenue potential and putting further strain on bottom-line performance.

Valuation

• The assumed bearish price target for Thai Beverage is THB0.46, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Thai Beverage's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of THB0.75, and the most bearish reporting a price target of just THB0.46.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be THB350.9 billion, earnings will come to THB30.2 billion, and it would be trading on a PE ratio of 11.8x, assuming you use a discount rate of 7.8%.
• Given the current share price of THB0.46, the bearish analyst price target of THB0.46 is 1.6% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.