Thai Beverage Public Company Limited (Y92) Earnings Call Transcript & Summary

Good evening, everyone, and thank you for joining the Thai Beverage First Half 2020 Results Call. [Operator Instructions]. I will now hand over the call to the presenters, Ms. Namfon Aungsutornrungsi, ThaiBev's Head of Investor Relations; and the members of ThaiBev's senior management team. Please go ahead.

Good evening, ladies and gentlemen. Welcome to Thai Beverage the first half 2020 ended 31st of March 2022 financial results conference call. I am Namfon Aungsutornrungsi, Head of Investor Relations. For the conference call tonight, I will start with a summary of the first half 2022 results, then we will open the line for a Q&A session with our management team. For the summary of the first half financial results, total sales revenue of the company for the 6 months ended the 31st of March 2022 was THB 142,942 million, an increase of 8.9% when compared to last year. This was due to an increase in sales revenue of our business segment. Net profit was THB 18,365 million, increased 14.2% compared to last year. This was due to an increase in net profit of the nonalcoholic beverage business, food business and associated companies, which is partly offset by a slight decrease in net profit of spirits business. ThaiBev's Board of Directors agreed to propose an interim dividend payment of THB 3,768 million or THB 0.15 per share, the same as last year. The company remains committed with our full year dividend policy of not less than 50% of net profit after deducting of our specified reserve, subject to our investment plans and as the Board of Directors deem appropriate. In the first half 2022, the company's spirits business generated sales revenue of THB 65,186 million, a 2.1% increase compared to last year. Sales volume increased 6.4% year-on-year. The spirits business reported net profit of THB 12,816 million, a slight decrease of 0.4% year-on-year due to an increase in cost of goods sold. The company's beer business recorded sales revenue amounting to THB 61,939 million in the first half, a 14.7% increase compared to the previous year. Thanks to the measures to contain COVID-19 have been legalized, total sales volume increased 5.5% year-on-year when including Sabeco sales and increased 2.8% year-on-year when excluding Sabeco sale. The company's net profit for the beer business showed a satisfactory increase by 62.2% year-on-year to THB 1,377 million. The company's non-alcoholic beverage business generated sales revenue of THB 8,204 million, an 8.1% increase year-on-year. Total sales volume rose 7.5% year-on-year mainly due to the increase in sales volume for our drinking water, our ready-to-drink tea, partially offset by a decrease in covenanted soft drink sales volume. Net profit for the non-alcoholic beverage business rose 31.5% to THB 438 million. The company's food business recorded sales revenue of THB 7,688 million in the first half, a 30.6% increase year-on-year, following the resumption of dine-in services. Net profit increased significantly by 261.5% year-on-year to THB 272 million. This was mainly due to an increase in sales as well as managing distribution costs and administrative expenses prudently. The company's international business recorded sales revenue of THB 36,867 billion in the first half 2022, a 24% increase year-on-year. The increase was mainly due to a 29% increase in beer sales as a result of the relaxation of COVID-19 restriction in Vietnam and the growth from Chang product sales in China. The International spirits business reported sales revenue growth of 3%, driven by Myanmar market. That is the summary of the first half 2022 results. Before we start the Q&A section, I would like to note that for regulatory reasons, management will not answering any questions in respect of the proposed spin-off BeerCo Limited. Instead, please refer to ThaiBev's announcement on the 5th of May 2022. The announcement includes certain information about the BeerCo group that allow ThaiBev shareholders to better understand the scope of the proposed spin-off and the listing of BeerCo. Certain information about the BeerCo group is also included in today's presentation materials for proposals of updating the information previously provided about the BeerCo. However, in this conference call, management will only speak about the ThaiBev's beer segment, which is different from the BeerCo group. Management may not respond to questions relating to the BeerCo group for regulatory reasons. We will now open the call to any questions on our results. Operator, please open the line for Q&A.

[Operator Instructions] We have got the first question from Selviana Aripin, HSBC.

Sure. My question is with regards to the spirits business. It seems that as the economy reopens in second Q, this time, it appears that sales growth momentum is slowing down. Can management talk about what to expect in terms of outlook going ahead? In terms of spirit business, should we expect further slowdown in the spirits business? That's my first question. My second question is with regards to the performance of brown versus white spirits. Can management make some comments around that?

In terms of the 6 months of spirit volumes reported is actually one of the highest since we listed. So actually, the momentum is doing -- our sales are doing well. And in terms of profit that we actually have a flat profit compared to the quarter with the same period before because we have experiencing some cost push from raw material that basically pressure us to have some price adjustment that happened in this first half of the year. We have completed the price adjustment in the white spirit's space that should allow us to maintain our profitability. In the -- due to price adjustment in the first 6 months, meaning the first half, there are some additional loading and increasing in sale in white spirit. So the product mix have shifted to be more white spirit as a percentage than brown spirit because of the price increase in white spirit that causing the trade to stock up and, therefore, reducing the weighted -- more like a weighted gross profit margins of the -- in the first half. The first half have experienced some lag or laggings in brown spirit's sale. I think this is happening throughout the industry, including the beer industry as an -- industry as a whole and brown spirit experiencing some decline because of the -- in the first half, we -- the country experienced a lot of COVID infections, social distancing have been restricted. We are expecting -- however, we are expecting the second half, the brown spirit consumption will pick up because of the opening of the trades, opening returning of the tourists. And as we seen in the news the past 2 days, the operators, meaning the pub and bars associations of the operators are requesting the government to allow them to open. They've been closed for, I think, more than a year, close to a year. So I think that with that opening, it will allow social gatherings and allow for a better brown spirit sale in the second half.

Our next question is from Thitithep Nophaket from Kiatnakin Phatra Financial Group.

Can you hear me? Hello?

Yes, we can hear you.

Can you hear me? I have 2 questions. Number one, if you look at the sales in bottom in the past 6 months, beer seems to be doing better than spirits for both in Thailand and in Vietnam. Spirit is not doing that badly, but then it's still negative by a low-single margin. But usually between beer and spirits, spirits is more resilient than beer. Why has beer performed better than spirit in the past 6 months? That's the first question. And then second question, can you update us on the raw material situation on molas? And then how the price inflation for the freight weight for the gas for the [indiscernible] affect your gross margin going forward?

Please go ahead to answer. Thank you.

Thitithep, when beer better than spirit, then you ask questions. When spirits better than beer, then you ask questions again. But anyway, I think it's because beer, we have the Vietnam market also -- Vietnam market, the market is open before Thailand. And then the growth in Vietnam is quite significant this second quarter. While spirit, majority is in Thailand and the opening of the market is slower. As you can see that the pub and bars and things do not open up to today, okay? And they probably will consider opening very soon because there's a lot of pressure from the operator to the government. So that's the -- hope next quarter, we grow at the same percentage spirit sales. Thank you.

Thitithep Nophaket, Mr. Prapakon answered about the molasses cost. Actually, because this is related only to Thailand because our raw material, which is molasses for spirit and molasses are linked to sugarcane, sugar refinery. So those are the crops and those industry data that you can see that this crop -- I think the sugar industry, the crop for this year is much better than last year. Last year was one of the probably worst year of sugar crops in Thailand. So this year, the sugar corp CapEx increased by almost like more than 40%, 50% -- almost 40% than the year before, so which means the molasses that we purchased from this crop price are lower than the year before. But the raw material cost in terms of that coming through into a cost of good that you see in the first half year is actually relating to the molasses from last crop or this crop. So this crop that we bought in, actually they're still in the work in process and finished goods ready to be sold. So we are expecting the -- because of this is the fact that there are small molasses in the industry. So our molas costs are lower currently than the year before that. Hopefully, that answered the molasses expectation. And because of the industry also -- the sugar industry also guarantee a price for the farmer in the next 3 years. So the sugar industry are expecting that there will be more sugarcane crop in the year for the next 3 years as well. So we are expecting that, next year, that's what the industry is expecting that there will be more molasses, and therefore, price will come under pressure on the lower side.

Thitithep, Pisanu speaking. You asked about the malt. I can inform you briefly about that we are lucky in the way that we have to carry over crop from the last years. So I think we are lucky. And I want to give you another information is that we never rely on the bale, another way we call it malt, from Ukraine and Russia. We don't have the sources over there. Okay. Thank you.

Right. Right. Just one follow-up question. I try to separate the beer sales in volume terms in the first half of the year between Vietnam and Thailand, I'd just like to confirm that my calculation is correct. According to my calculation, beer sales volume increased both market in Thailand by about 3% year-on-year and in Vietnam it's about 7% year-on-year. If you can just confirm that my calculation is accurate.

Thitithep, yes, it increased for both markets. And when we report, we report the sales volume includes the BeerCo and excludes the BeerCo, you can work on the increased amount from those number that we report.

Our next question is from Nicholas Teh, Credit Suisse.

Just had a couple of questions. Let me just want to follow up on the raw materials. For the malt stocks, I just wanted to ask how long that would last? And in terms of the molasses, would you mention that because of the -- I guess, the higher volume or the higher crop this year that the price is lower than it was in even 2021 or even 2020? And then I just want to understand in terms of the price guarantee. So just on -- so if the price comes down, basically you as highlighted to buy the cheaper price and then the government paid the farmers the difference between the net price and the guaranteed price?

Nicholas, in terms of the forward-looking for the malt price, sorry that we cannot give you the guidance on those. For molasses, [indiscernible] explain to you.

Nicholas, I think for molasses, let me just clarify what we're referring to the government -- sorry, the sugar refinery industry have guaranteed the price per share for raw sugar -- like raw sugarcane on the farmer for the next 3 years, which means it gives the farmer a comfort level that they will have a good fixed price going out. That's why the farmer will be willing to keep growing or keeping the sugarcane because the sugarcane in Thailand is the crop that switch between sugarcane and tapioca, some others. So which means the farm -- and corn, we have 3 crops, so you can switch between corn, sugar and tapioca, but normally, it takes about 3 years for the farmer to recover those. So whatever the government -- if the sugar refinery -- sugar industry are giving some guaranteed price, so there will be more farmer -- more number of farmers are convinced to stay in the sugar, by growing sugar instead of switching to corn and tapioca. So that's what I mean. So therefore, given that outlook, we are expecting there will be more sugar in the next crop. The crop of sugar in Thailand started in December and end around April of this year -- of each year. So that's why we are in May, that's why we can say that, as of end of April, just last month, the sugar -- this crop have provided more sugar and more sugarcane, more sugar and more molasses than the year before because the year before was really low year, okay? And from what I said about the price guarantee for the farmer, which means there will be more sugar. And therefore, by definition, molasses is sugar byproducts, there will be more molasses as well. And therefore, price of molasses should be kept low or lower than this year.

On the malt, I wasn't asking if it was the forecast. I was just asking, if I heard correctly, you said you had -- you still have some stock. So I just wanted to understand how much -- how long do those stocks last?

Nicholas, we also cannot tell you how long that we buy forward because number one, it will -- you will know how long we have it forward. That is something that we cannot provide, sorry.

[Operator Instructions] We have got one from Teng Yao Yang, UOB Kay Hian.

I just have one question. Seeing that there's some pressure in cost and due to the inflation and whatsoever. So I'm just thinking -- the question is just asked -- sorry, I just want to ask whether are there any future price adjustments for white spirit or beer or brown spirit? So to understand that white spirit has already been price adjustments for the white spirit. So particularly, I'm just trying to ask is, is there any price adjustments for beer and maybe brown spirit?

What your question is about future price increase? Is it right? Is it for future price increase?

Yes more or less. Yes.

Is it for future price increase, we -- normally we don't disclose.

Can I just [indiscernible] from Vietnam. Just to reiterate that we already increased price in December last year. In April -- this December last year. So I think we have also increased in December this year -- April this year. So we made the price adjustment already.

Our next question is Horng Han Low from CLSA.

I would like to know a little bit more in terms of our A&P spending given that the economy in Thailand has already begun to reopen. You also are expecting tourists to return back to Thailand. Can we try to understand in terms of A&P spend? How do you see this trend as a percentage of sales tracking over the next few more quarters or next 1 or 2 years? Some clarity on this would be appreciated. In terms of our A&P spending, given that the economy in Thailand is ready for reopening, and we also expect tourists to return, come back to Thailand. Can you try to understand in terms of E&P spend?

Horng Han, do you hear? Did you hear it clear from Vietnam side?

No, sorry. I repeated myself, my apologies. Hello?

Give me a second. Let me just reach out to the speakers. Cabinet, are you there? Namfon, would you like to say a few words?

Difficult to answer. Of course, if the economy picked up, the situation allow, then we would consider sort of increase the A&P, just to make sure that we maintain our brand equities and all that. But it's difficult to answer because, for example, right now, Thailand, the pubs and bar not open, and then the government still have some regulations. So we don't know when will they totally open. But if the economy is going -- coming back and then situation is better, of course, as a brand company, we need to put money behind the brand. And that's my general answer for any market.

Sure. Can I call one with regards to pricing? I understand that there was an earlier question with regards to Thailand and whether you'll be considering price increase. Maybe we could shift gear a little bit and look at some of your competitors. Can we try to understand [indiscernible] waiting prices so far this year? Because I understand that you raised pricing on sometime in March. My question is particularly for beer, which I think you raised in March. Just trying to know whether it has any other peers raised prices as well?

Horng, this is Lester here. I think -- yes, with regard to price increases, we always try to monitor the market situation as well as our internal situation and with regard to pricing with our -- sorry, our material pricing. So this time around, yes, we did increase our prices in March, and there were some competitive movements around the same period as well.

[Operator Instructions] We have got Paul Chew from Phillip Securities.

Just 2 questions on the spirits business. I just wanted to confirm. The second quarter volumes was up 4%. Revenue was, I think, flattish. Just confirm that this is because of the product mix, this higher contribution of white spirit. That's my first question. The second question, again on spirit. Could you give us that which month did you increase the price for white spirits?

Yes. On the second, it is a product mix in the second quarter. The small definitely more white spirit sale, actually very high double digits, and we do have a lower brown spirit sale compared to the same quarter before. So that's the product mix. That's why it contributed to a slightly lower profit while the sale is higher. The price increase for white spirit, we actually increased after volumes, well, the large bottle was increased back in November and the small bottle was increased in February. So we split it -- it is actually splitted off in 2 quarters.

We have got a follow-up question from Nicholas Teh, Credit Suisse.

Just a quick one. In terms of the price increase that you've done this year already, can I just check how much it was for beer and for spirits?

Nicholas, this is Lester here. For beer, we raised prices differently across the portfolio. But generally, they were in the low single digits.

We do increase price in Thailand, that's all I can say. We don't normally review the numbers.

Nicholas, for white spirit, the price increase is roughly about to 6%. So that depends on the unit size, the SKU would increase. But only on the white, we did not increase brown spirit. The last time we increased brown spirit price was at the beginning of the COVID, which is we consider to be the first and the second quarter of the year 2020 fiscal year, about 2 years ago.

Okay. Got it. That's 4% to 6% for white spirits, right?

4% to 6%.

[Operator Instructions] As there are no further questions, I will hand over to Ms. Namfon Aungsutornrungsi. Please go ahead, ma'am.

Thank you for joining Thai Beverage's conference call tonight. If you have more questions, please feel free to contact IR department at [email protected]. Thank you, and have a good night.