Thai Bev

Thai Bev: 3Q13 results below street estimates, as the higher FNN associate contributions failed to make up for the short fall in the main Thai F&B business. Total sales dipped 7% y/y to THB35.0b, vs consensus of THB38.8b. Net profit climbed 33% to THB4.1b (excluding one of gains related to the FNN stake acquisition last year), mainly boosted by the associate contribution from FNN, but was below consensus of THB5.4b. Excluding the FNN contribution, net profit from the Thai business declined 23% to THB3.7b. The bottom line drag came mainly from a 1.0ppt compression in gross margin to 28.5%. Gross profit slid 10% to THB10.0b, impacted by a decline in i) the spirits business (-8%) following an upward revision in excise tax that took effect from 3 Sep, and ii) the non-alcoholic beverages business (-49%), due to a drop off in sales from its Sermsuk products after its licensed brand products was terminated. Higher labor costs from the broader implementation of a minimum wage policy also impacted margins. At the last close of $0.54, the stock trades at 21.3x annualized 3Q13 P/E, 3.9x P/B. StanChart reiterates its Outperform call with TP $0.75. Notes that despite the short term challenges, Thai Bev’s core business remains solid. Expects the group’s core spirits business to generate operating earnings CAGR of 7% over 2014-17e. The house continues to see a 75% probability of an injection of FNN’s F&B business into Thai Bev in exchange for the latter’s 29% stake in both F&N and Fraser Centrepoint. The house tips THB8b in synergy gains arising from such a restructuring.