Thai Beverage - Expect earnings resilience ahead

Expect some earnings resilience during political unrest
Following a six-month political deadlock in Thailand that saw PM Yingluck Shinawatra and several ministers being ordered out of office, the military seized power in a coup. Though Thai Beverage PLC’s (ThaiBev) revenue is largely derived from Thailand (1Q14: 96.2%), we see limited impact from the current political unrest.

First, the political unrest is mainly limited to Bangkok, while ThaiBev’s sales takes place in every province in Thailand. According to CEIC, Bangkok’s 2012 population at 5.7m only makes up 8.8% of total population.
Second, ThaiBev’s defensive alcoholic portfolio will shelter against economic contraction triggered by political uncertainty. In the latest 1Q14 releases, spirits sales revenue held up well (+10.4% YoY) despite GDP contracting (-0.6% YoY) as a result of consumers switching from brown to the cheaper white spirits. Since spirits segment makes up bulk of net profit (95.2% in 1Q14), its defensiveness will provide earnings resilience for ThaiBev.
Finally, proportional accounting (vs. current equity accounting) of F&N and FCL revenues (largely non-Thailand) with Thaibev’s 28.6% stake would reduce ThaiBev’s underlying exposure to Thailand by an estimated 12.6ppt to 83.6% based on 1Q14 figures.

Using history as a guide
Political unrests are the norms during FY08-FY13. During this period, spirits segment’s revenue consistently grew by high single- to double- digit (7.3%-16.6%), thus displaying growth resilience. Through the spirits segment alone, we can observe that political instability can co-exist with growing consumption of
ThaiBev’s products. As there are beer industry-specific competition and excise tax hikes, we exclude using beer business as a historical guide. The non-alcoholic and food segments are also excluded as they are grown through M&A.

What will worry us then?
We maintain our view that the current political unrest’s impact on ThaiBev will only make a slight dent on near-term revenue growth (5.2% in FY14F; 6.3% in FY15F), unless the protest ground widens beyond Bangkok. We re-iterate BUY with S$0.74 fair value estimate.