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Thai Beverage’s First Quarter Results: Weighed Down By Acquisitions

Ser Jing - Thai Beverage First Quarter Results, Weighed Down by Acquisitions (pic)The aptly-named Thai company Thai Beverage (SGX: Y92) posted a 4% slide in quarterly revenue from 40.6b baht last year to 39.2b baht in its first quarter results that was released on Tuesday evening. Meanwhile, profit for the quarter fell by 22% year-on-year from 4.42b baht to 3.43b baht.

The company has four main businesses; Beer, Non-alcoholic Beverages, Spirits and Food. The first business, Beer, pulled in 8.61b baht in sales for the quarter, a decline of 1.4% from last year. The other laggard was the Non-alcoholic Beverages business, which saw a year-on-year drop of 38% in quarterly top-line to 4.76b baht.

Spirits’ revenue increased by 5.2% from a year ago to 24.4b baht and it was accompanied by the Food business in the growth camp – the latter’s sales jumped by 25% year-on-year to 1.46b baht. The net-result of the changes in revenue figures for these four businesses resulted in the company’s overall sales decline.

What were the reasons for the changes though? For the Beer and Non-alcoholic Beverage businesses, the reasons were simply due to them selling less. The Beer business, as its name suggests, deals with beer and it counts Chang beer, with its eponymous ‘elephant logo’, under one of its brands. Meanwhile, the Non-alcoholic Beverage business is in charge of soft drinks and other beverages. The Spirits business benefitted from a better product mix and higher prices while the Food business grew revenue because of a higher price-tag on its products and more physical stores.

But what about Thai Bev’s profitability, you’re asking? The main reason would be due to the new kid on the block – drinks maker and property developer Fraser & Neave (SGX: F99). Thai Bev acquired a 29% stake in F&N earlier in the year. Both companies are actually controlled by Thai billionaire, Charoen Sirivadhanabhakdi, which has ownership stakes in Thai Bev and TCC Assets (the latter owns 61% of F&N).

In any case, F&N reported an operating profit of 230m baht, foreign-exchange losses of 557m baht and finance costs totalling 400m baht. All these resulted in F&N contributing 727m baht worth of red ink on Thai Bev’s income statement, largely accounting for the latter’s fall in quarterly profit. If F&N’s results were stripped away, we’ll see Thai Bev’s profit for the quarter improve significantly to 4.16b, though it’s still 6% lower than last year’s 4.42b baht.

For companies that are highly leveraged, it pays for investors to notice balance sheet changes. In Thai Bev’s case, its balance sheet has deteriorated somewhat, with net-debt increasing to 99.6b baht compared to 87.2b baht a year ago. It is also worth noting that the company’s credit rating was downgraded by ratings agencies Standard & Poor’s last month.

Shares of Thai Bev were 0.8% higher on Tuesday at $0.66. At that price, it’s trading at a Price-Earnings ratio of 15 with a dividend yield of 2.5% based on last year’s annual pay out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.