BROKERS’ DIGEST Thai Beverage

Price targets: CGS-CIMB Research ‘add’ 67 cents DBS Group Research ‘buy’ 72 cents

Reduction in alcohol tax

Analysts from CGS-CIMB Research and DBS Group Research are keeping their “add” and “buy” calls on Thai Beverage after the Thai government announced that it would reduce its domestic alcohol tax for a year on Jan 2. The move comes as the Thai government seeks to boost tourism and the economy.

Approved measures include exempting import tariffs on wine, reducing excise taxes on wine and eliminating taxes on local spirits. The excise tax on entertainment venues will also be halved. The measures are expected to take effect shortly and will expire at the end of this year.

“The tax cuts came as a positive surprise to us as we had previously thought an excise tax rate hike for alcoholic beverages in 2024 was likely in a bid to fund the Thai government’s economic stimulus measures,” write CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan. However, they expect ThaiBev to pass on the lowered taxes to its consumers only partially.

“While we await the publication of ministerial regulations for more clarity on the approved tax cuts, we carried out a sensitivity analysis on FY2024 ending Sept 30 net profit growth (assuming nine months’ impact) to estimate the potential impact from incremental volume growth, and incremental margin expansion, of ThaiBev’s spirits segment,” they state.

For FY2024, Ong and Tan estimate ThaiBev’s net profit to come in at THB29.12 billion ($1.13 billion). While they have kept their target price unchanged at 67 cents, the analysts expect to see a positive share price reaction for the counter. “We expect [ThaiBev’s] spirits strength to drive [its] FY2024 earnings growth,” they write.

The DBS team has also kept its target price of 72 cents as they see the tax cuts as a positive development for alcoholic consumption, thereby providing a positive share price catalyst for ThaiBev.

“The cut in alcohol tax, albeit temporary till the year-end in 2024, indicates the authority’s stance to promote tourism and consumption. This cut in alcohol taxes could also douse market concerns of an increase in excise taxes on alcohol to fund the government’s recently announced fiscal measures,” says the team.

“We retain our positive view on the counter with it trading at [around] 12x on FY2024 P/E, which is at about –1.5 standard deviations (s.d.) below its 15-year historical P/E,” adds DBS. —