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

Good evening, everyone, and thank you for joining the Thai Beverage FY 2022 Results Call. [Operator Instructions] I will now hand over the call to the presenters, Ms. Namfon Aungsutornrungsi, Thai Bev's Head of Investor Relations; and the members of Thai Bev's senior management team. Thank you. Please go ahead.

Good evening, ladies and gentlemen. Welcome to Thai Beverage Fiscal Year 2022 Ended 30th of September 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 full year results, then we will open the line for a Q&A session with our management team here. For the summary of the full year results, total sales revenue of the company for the year ended 30th September 2022 was THB 272,359 million, an increase of 13.2% when compared to last year. This was due to an increase in sales revenue of our business segment. Net profit was THB 34,505 million, an increase of 26.2% year-on-year. This was due to an increase in net profit of beer business, nonalcoholic beverages business, for business and associated companies, although there was a slight decrease in net profit of spirits business. The Board of Directors has proposed to issue a dividend of THB 15,072 million or THB 0.6 per share, which is higher than THB 0.5 per share of last year. The payout ratio for 2022 dividend is 50.1% payout ratio. Please note that the interim dividend was paid in June 2022 at THB 0.15 per share, and the final dividend will be THB 0.45 per share. In 2022, the company's spirits business generated sales revenue of THB 116,177 million, a 1% increase year-on-year while total sales volume increased 0.1% year-on-year. The Spirits business reported net profit of THB 21,902 million, a decrease of 1.1% year-on-year due to changing in product mix and higher packaging costs. Although molasses costs started to come down in the third quarter 2022. To mitigate the impact, the company made appropriate price adjustments. The company's beer business recorded sales revenue of THB 122,489 million in 2022, a 23.5% increase compared to the previous year. In view of higher beer sales volume following the relaxation of COVID-19 control measures in Thailand and Vietnam. Total sales volume increased 14.5% year-on-year when including Sabeco sales and increased 3.7% year-on-year when excluding Sabeco sales. Net profit showed a satisfactory increase of 143.6% year-on-year to THB 7,597 million. The company's non-alcoholic beverage business generated sales revenue of THB 17,432 billion, up 14.6% year-on-year. Total sales volume increased 10.9% year-on-year mainly driven by higher demand for our drinking water, carbonated soft drink and ready-to-drink tea products. Although there was an increase in material cost, the non-alcoholic beverage business reported net profit amounting to THB 586 million, increased 27.8% year-on-year, mainly due to the improvement of production efficiency and the cost saving initiatives. The company's food business recorded sales revenue of THB 16,433 million in 2022, a 45.7% increase year-on-year, following the resumption of that in services. Net profit increased significantly by 177.1% year-on-year to THB 376 million. This was mainly due to an increase in sales as well as the prudent management of distribution costs and administrative expenses. The company's international business recorded sales revenue of THB 78,872 million in 2022, a 37% increase year-on-year. The increase was mainly due to a 46% increase in beer sales revenue from Sabeco in line with Vietnam strong reopening momentum. Sales revenue was further boosted by a 7% increase in revenue generated by the international spirits sales on the back of higher contribution from Grand Royal Group in Myanmar as well as from the Scotch whiskey sales and the sale of Chinese spirits. That is the summary of our full year 2022 financial results. Now we will open the line for any questions on our results. Operator, please help open the line for our Q&A.

[Operator Instructions] Our first question is from Horng Han, CLSA.

Thank you for the presentation and giving me the opportunity to ask the questions. The first question I have is...

Hello, Horng Han, can you please speak out a little bit? Hello?

Sure, sure. Can you hear me clearly?

Can you speak a little bit louder?

Is it okay now? Is it louder?

Okay. It's much better.

Can you hear me?

Yes, it's good now.

Sorry about it. The first question I have is on pricing. Can we try to understand this year, how many times has Chang beer raised prices? I understand there was a price increase in the first quarter, sometime in March. Has there been any price increase subsequently after that? And will management be planning any in FY '23?

Yes. Okay. Horng Han, yes, we did a price increase across the entire portfolio of brands and all SKUs in the first quarter of this calendar year. We haven't -- we -- for the rest of the financial year, we did not make another price increase, although there are plans, there are plans in the works for another 1 within the financial year.

Sure. Sorry, maybe I didn't hear you clearly, sir. You mentioned that next financial year, FY '23, you may have some plans to raise prices again, right?

Yes. Correct. Because these are forward-looking statements, so I cannot give you a clear definition. But yes, it's within the plan for this financial year that we will do another price increase.

Okay, sure. I understand. And the second question I have is on the inventory. With regards to the beer business, can we try to understand in terms of the procurement for your raw materials, how much has it changed compared to a year ago when you were -- when used to buying then say in December, November in 2021 versus now in November, December 2022. Can you give us some sense in terms of the increase?

Horng Han, you talk about the raw material for the beer?

Yes, that's right. That's right. With regards to the malt [indiscernible].

Don't worry, we have already secured our malt [indiscernible], I mean, due to end of this year production at a lower price than market. And also for the next half year -- next year, we have already secured our malt price. It will be higher than this year, it will be higher than this year, but it is still significantly lower than the market price now, which is above EUR 800 a tonne. But we have secured. Yes. Okay. Please go ahead, ask me.

Okay. Sorry, I think your voice was breaking out a little bit. I think what I hear is that the price that you are buying now is higher than last year, but it's a lot lower than market price. I am that correct?

Yes, you are correct. But we have already booked for the next half year. The price of next half year will be higher than average of this year but still lower than the market price. We were -- we are so lucky that we have booked it ahead of the game.

Okay. Okay. And is there -- can we try to understand how much lower is the keg prices? Is it like a 5% lower or is it like 10%, 15% lower than market price?

Higher than 5% for sure. Much more than 5%. You will be surprised. But the people tell me because otherwise, for the average cost of this year, extremely lower than the market price. Next year will be higher than this year, but still cheaper than the market price because we move ahead of the game. And the inventory will be at least...

And the last question.

Yes. Yes. Sure.

If I was just trying to understand what's the price difference between your buying of what you bought last year? Is it like 20%, 30% more? Is there some kind of guidance you can give, sir?

Horng Han, I'm afraid this 1 is kind of forward-looking because if we tell you how much we -- is more, then you can guess the numbers, sorry about that.

No problem. It's okay.

[Operator Instructions] We have got Permada Darmono from UBS.

Thanks for some of the inputs. Any comments on the outlook of molasses? And just how will you plan to tackle the packaging costs? I suspect the packaging cost that has increased a lot of aluminum. Is that right?

Bob, Prapakon, can you respond to that about molas, please?

Will kick up on molasses, which is related more of the spirit in Thailand. We use molasses that input cost, packaging wise we use glass bottle. So aluminum can will probably be more related to the beer business in Vietnam because using a lot more aluminum can and -- than the beer business in Thailand, which is mostly glass bottle. Okay. On molasses wise, last call as reported in previous meetings that price have been better than the year before, and we are now expecting a much higher sugarcane crop this year, should be expecting to retain which should start harvesting in middle of December, we are -- based on the government forecast, it's been that at least 15% to 20% upward in terms of output. So with that, it should allow for more molasses in the market. And that will allow us to acquire more molasses. Pricing-wise, we see quite stable pricing due to recent baht but weaknesses have caused some of molasses price to stay firm due to export price [indiscernible]. So that's where we are but I think baht have -- Thai baht have strengthening back so when the crop start harvesting and the product is available to purchase we're expecting the price will be soften than currently. So that's where I am on molasses. On aluminum cans, I will let my colleagues to answer.

The alu can, the price comes down already, and we enjoy it also. That's what I can say. The price of the alu can come down quite significantly from its peaks.

Got it. And just on Domestic Spirit, the sales volume growth seems quite capped this year, and I understand that's because of the brown spirit. As Thailand continues to reopen, tourists continues to come [indiscernible] spirits -- generally tourism doesn't really benefit spirits too much. But as the economy reopened, how should we think about the spirits volume consumption? Will it recover further? And what's the reason behind the relatively rapid increase for this fiscal year?

Okay. In terms of the brown spirit, we have started to see in our last quarter, July, August, September, the higher increase in consumption and even the latest number in October, and this is not our number is, third-party, the big company, third-party market research that means those acquired those data the consumption for brown spirit in Thailand have increased. I think last quarter, over 20% and the latest number in October, I've also seen the number at 20% to third-party data. So that's in line with the level we are selling in. This is the baseline. Last year may be a bit low because highlight in the COVID with the social distancing and all that. So I think we're looking very positive with the recovery of the brown spirit consumption.

And the reason in fiscal year 2022 of the relatively slow growth of Spirit?

In terms of profit-wise, actually Thailand representing about, say, 90%, 92% of those numbers. There's some -- the part about 8% coming from Myanmar. Myanmar wise, we are doing very well for higher volumes as well. In terms of Myanmar, everyone knows the currency has been weakened rapidly due to change in the political environment there. And so with that, the profit that came in auto, they actually our business in Myanmar made record profits in local currency. But in that when we translate back to our reporting currency the profit decline to us. So that's in line with that in terms of spirit in Thailand last year is the cost structure that cost of raw material and packaging that we have to deal with, we have some price increase, but not offsetting the overall increase in structuring cost -- structure costs on the input. So that's why the -- for slide ever number.

Understood. But what about the top line? Because the top line grew only by 1%. So just wondering what's the driver? Because second FY '21, I think, was better, right?

Yes. I think the overall, I would say, blame on economy. I think we were quite large in terms of the volumes, and these are our number based out of what the economy would generate. And this past year, like again, the tail end of those COVID and the government's income support and the general economy started to soften quite sharply. But again, toward the last quarter, we start to see a lot of better size in terms of recovery in spending by the consumer.

And last question from my side. Any views or any kind of indications of excise tax increase?

There's no excise tax increase at the moment. It's unlikely at this point to, we have the new government. According to the government term, the new election should be called by the full year parliament terms ending in March. So between now and then, there should be a new government. And therefore, quite any excise tax changes will probably be the policy of the new government.

Got it. And have a good evening, and of course, best of luck for the first quarter of the fiscal year '23. Really appreciate it.

Our next question is from Divya Gangahar, Morgan Stanley.

Two questions from me. The first question is just on the spirits margins. Can you help us understand why the spirit margins at the operating level are much weaker than what we saw in the first half of this year? So we are seeing about a 200 basis points lower margin in the second half versus the first half and even versus last year, it's down about 50 basis points. So while I understand the raw material side, the gross margins are actually still higher, but it's the operating margin, which is lower. So I just wanted to understand what SG&A increases are you really seeing on the spirits side? That's the first question. And the second question is if you can comment on the law -- on the progressive liquor law that's been debated in Thailand now based on the bill that's been passed the changes that you see, I mean, what do you expect -- how do you expect that to impact the business?

Divya, this is Bob. I'll take the new law first. The new law actually passed by the government under Ministry, the law. So that allows for home brew. I mean, people can do beer and drink at home, people can spirit, the sales spirit and drink at home for the own personal consumptions, we do not -- but they are not allowed to sell ever outside of their premises. And there are a limit up to how much they can actually produce for their own use for the month -- so sorry for my voice as in having this bad cold supposed to be going away. So the -- so with that law, the change in that law and some additional parts that the smaller, they call it village products have allowed -- being allowed to increase the capacity. Those products had go to part the home consumption, and we do on bring a home assumption. It's not going to -- we do not see as it's going to change the landscape of the consumer because I think home consumption or home doing has always been there, whether regulate, not regulate, which is being regulated properly and people have to have a license to do that. And this your own spit it also comes with a lot of risk in terms of quality. So those are something that we do not support their thinking that it's just -- it's too risky for the consumer, but we don't see it's going to change the landscape of the competitor. As for the additional capacity from the low-cost spirit, which potentially will increase the competition of that low price spirit, that low price spirit has always been in a space where tax collection has not been effective. So I think it's a question of the government who are trying to collect that as the producer showing that to size that their capacity increase, although the capacity probably increased from the beginning, but they're not quite regulated and support by law. So I think these 2 parts, the law actually been out there to regulate what had been reached of the law. So I don't -- we don't see that as much changes to the way we deal with the business, because our product price, although product price, we call it low price, but the low price that we didn't stand out mass market. These products we talk about in past are priced much lower and again, add lower quality as well. Okay. Back to the gross margin of -- Divya, can you ask me that question again because I wasn't sure what you you're asking. I understand the Q1 of the past year.

Sure. So what I was saying is that in terms of the spirits margin, like I understand that at the gross profit level, the margins have actually been better on a year-on-year basis in the second half of this year. But what we've seen is that the SG&A spends have gone up quite a bit and -- in the second half of this year. So if I look at the SG&A spend, it's the reason why the operating margins are actually lower year-on-year, trying to understand where the pressures have been on the SG&A spend? And are there any one-offs? Or do you expect these kind of margins to persist because the spirit margins are now below 21% in the second half?

Yes. I think this is -- we don't break down into different countries, but I think most of it you see is in Thailand. The -- what happened really on the product mix, we have a lot of price rate mix at the beginning of the year. So that from the volume perspective by the help supporting that baseline when you calculate the margin back. In second half, the price rate volumes are much lower than the normal half because we did price increase in the first half, so a lot of volume is loaded upfront. And in the fourth quarter, as the routes, we start to return with increasing growth, we also have to increase our spending at the -- on the brown spirits. So that's been increasing in every station of more sale in Q1 and Q2. So I think with that mix, it's probably -- you see maybe a shift of margin erosion, but I think it just has to do with the mix of where we cut the first half and second half I wouldn't put much weight onto that change.

Got it. But basically, marketing spend is what you're seeing have been increased in the second half to support the brown spirits business as you have more on-trade come back?

Yes. It is the current -- so that's anticipating of the sale in the first quarter.

And just my last question is on beer market share in the domestic side. Could you help us understand like it seems to be that the volume growth in the second half has been 3%, 4%. How have your market shares trended in beer within Thailand?

Divya, this is Lester here. Our market share has been climbing. In fact, by the end of September, the gap between our competitors and ourselves was the smallest in the last 13 years. So our share continues to grow. It's been trending up since the market opened. In fact, even during the COVID period. So trending upwards, although we're not #1 yet, but we're getting there.

Any number, like I mean, is it 41%, 42% in numbers you can share?

I don't think we are allowed to share the share numbers, but you're close. What you say there you're close. Well, again, Lester here. And before we continue, I just wanted to go back to the question that Horng Han raised earlier about price increases. I mentioned that we had plans in the pipeline. Actually, we did a price increase in October already. It is public information. Therefore, I can share it with you. I thought that we're not supposed to talk about FY '23. But because it's public information, we did do another round of price increases in October already.

[Operator Instructions] We have a question from Llelleythan Tan, UOB Kay Hian.

Just a clarification on that. So the price increase in October was for the Chang beer in -- obviously in Thailand, but -- can I ask for -- is that -- was there any price increases for the team for the product launch in Thailand?

You talk about the price increase in Vietnam?

Yes, yes. Are there any?

Yes, is Bennett on the line?

Yes, I'm on the line.

Yes. Bennett, could you please case is your market, yes?

Yes. For Vietnam, Sabeco, we also public knowledge. We have increased our price in October as well across most of the products.

Okay. I have no other questions.

We have a follow-up question from Divya, Morgan Stanley.

Just -- Lester, on the October price hike. Just was curious to know if you can share how much has the price been increased? And if competition has followed in line? And what is the current price gap between Leo and Chang?

Divya, as usual, we're not allowed to give you the number, but it was a different percentages across the different SKUs. But for now, it was a low single-digit increase, and the gap right now, we're pretty close to Leo already. we still have a ways to go in terms of on a per carton basis, but we're pretty close.

Got it. And just an overall question on the outlook for next year. I mean, it's an election year. Typically, there is a little bit more cash floating around. I mean, can you maybe comment on what you expect on overall consumption trends for next year for both tourist and beer for the domestic business for Thailand particularly?

Divya, you referred to election in Thailand, Divya?

I'm just saying it's an election is, so does that kind of play into the consumption of alcohol? Or you think it's...

Yes. I think Divya, you've been followers for the last 10 years, every time we have elections, I think business -- our business is doing very good because it seemed to be a lot of drinking, a lot of free beer, free spirit, yes, we expect it to have some good impact in Thailand. Both beers and spirits -- Divya, say it again? Okay. I think you're happy now. Thank you.

Sorry, sorry, I was on mute. I said compared to this year, spirits was actually weak. You do expect a bounce back in volumes for next year given you'll have the additional catalyst of the election?

Yes, we hope so. I think we always expect for the best or better. It's going to be good. It's going to be good.

Our next question is from Ong Khang Chuen, CGS-CIMB.

I guess just now we touched on election. But I guess there's a near-term event FIFA World Cup. Can you comment a bit about the mood in Thailand right now since FIFA World Cup, I guess the timing is quite favorable. Are we seeing pretty strong sentiment? And how does it compare to the last round of World Cup?

Okay. Well, the World Cup has just only started and unfortunately, I wasn't in the beer business 4 years ago. So I can't really -- I don't have a basis for comparison. But I was walking around in Chiang Mai on -- over the weekend, watching all the preparations for the first game, sorry, the second day of games. And I can say that at least in the market in Chiang Mai and in Bangkok, you see that a lot of -- there's a lot of -- not high, but a lot of energy surrounding the World Cup. So a lot of interest there. We also will be having viewing tents -- the beer viewing tents around Bangkok and a couple of other cities to tap on this towards the end of the tournament where the bigger matches will be played. So I can say for now that as the market reopens, we're starting to see a new energy and World Cup is helping with that.

Let me add because -- this year, there's 4 games from 5:00 7 -- I think 5:00, 7:00, 11:00 and then late night. This -- the first 3 games is very good for drinking. So we have long, long drinking hours. I mean compared to last time, it's not like this, but I have to remind you that we just come back from the COVID incident. So it's right now, it must be about 80% of the on-trade is opened, but a lot of people, a lot of people during the game start from early evening until about midnight.

So I guess, good that you've increased the price of your beer before the World Cup. Can you confirm that the price hike is only for the beer. Have you adjusted the pricing on Spirit site recently?

Yes, we always go together in different timing. Yes, definitely, yes.

Got it. Last 1 is more of a housekeeping question. I'm not sure -- if you can break down the mix for your spirits business say, brown versus white in terms of revenue contribution. How is it like in third quarter and fourth quarter of this financial year? And how does that compare with pre-COVID levels?

We don't disclose that. I mean, we have not -- we've never been doing that in the past, so.

Got it. So if you cannot share number wise, maybe some qualitative commentary would help.

No. No, we don't. That's the way it is. The way we disclose is Thailand representing about 90%, 92%, and 8% coming out from Myanmar and then 1% to 2% coming out of the international market. That's how we disclose the number.

[Operator Instructions] We have a follow-up question from Permada Darmono, UBS.

I just have 2 questions related to the beer business. The first 1 is to either Bennett or Alan, if Alan is also on the line. There's been a worry about the bond market in Vietnam and Sabeco has THB 20.6 trillion in terms of short-term financial investments. According to the notes, it's all term deposits. I just wanted to confirm that you don't have any exposure to the bond market in Vietnam?

I can take that, Alan. So a quick answer to that is they are all short-term deposits, fixed deposits with the bank. And these are our panel banks and a pretty good credit strength in the market.

With high interest rates.

That's encouraging to hear. And then the second question is in relation to the beer marketing spend plan in Thailand as the economy fully reopened as Thailand reopened. How should we think about marketing expenses going forward in fiscal year 2023. Should it be an increase on a year-on-year basis? What kind of sort of advertising to sales ratio that we should think about, particularly coming out of Thailand in terms of marketing spend?

This is Lester here. I think to compare year-on-year against last year would be an unfair comparison because it was COVID for the entire year. So definitely, marketing expenses will be going up. What we've seen in the last quarter when the market opened in July, what we saw in the last quarter of the financial year was that our marketing expenses went up, but compared to 2019, the last -- the year before COVID hit us, our spend on a baht per liter basis continues to be lower than 2019, and we intend to keep it that way moving forward.

We've got a follow-up question from Llelleythan Tan, UOB Kay Hian.

Sorry, my question was I didn't catch the question about the price increase of Spirit. So I just like to clarify 1 final clarification. What's this -- was there a price increase level? Was it hand-in-hand with beer. Sorry about that, to make repeat the answer.

Yes, several I said. That's what I say. We do have a price increase plan -- in fact, in October, we increased some of the SKU.

[Operator Instructions] We have a question from Selviana Aripin, HSBC Research.

Sure. Thank you very much for the opportunity management, and thank you very much for the presentation. I have a follow-up question with regards to the earlier comments around advertising spend. And this question is probably directed to Lester well as better. How are you observing your competitors behaving in terms of their marketing spend? Are they -- do you have the sense that they are spending less than they did in 2019 in Thailand and Vietnam as well. How -- can you speak also about qualitatively how their behaviors have changed this time around versus, let's say, in 2019?

Selviana, Lester here. I will start with Thailand, and then I'll pass it on to Bennett after this. I think that because for Thailand, the market only reopened in July. So fairly recently only. We have not come back to the types of levels that we saw prior to COVID hitting us in 2019. So -- but I'm saying that I'm seeing the trend starting to pick up. We start to see more and more activities in the market. We also have had some big events happening. So like the Moto GP, which is an international race coming to Thailand, you had the APAC meetings just last week as well. And then now you have the World Cup. So we see more and more opportunities for marketing activities to take place. So therefore, the trend will be continuing to pick up. But in terms of have we reached 2019 levels yet, I don't think we've reached that level yet. It may come during the financial year. But on our end, we're looking to control it. So that -- like I said, on a baht per liter basis, we continue to be lower than 2019.

Okay. So Vietnam, I think our main competitors have increased their spend, particularly so this year because last year, the southern business were locked down. And I think they are very strong in the South, so they lost quite a lot of volume last year. So they are trying to regain share this year, so they are spending a lot more. And also, I think there are more brands now they have to use -- they have to take the marketing budget that pet over more brands. And I think that is going to be tough moving forward. But for us, I think we've been managing our spend, although absolutely increasing, but as I said, we're trying to manage it on a unit basis to remain or lower if we can over the coming years. But we expect the marketing activities to be very aggressive in the next months and years. But we will preview, so we will be more efficient.

[Operator Instructions] There are currently no questions. [Operator Instructions].