10 Facts You Need to Know about Thai Beverage’s 33% Drop In Profits

The aptly-named Thailand-based beverage maker Thai Beverage (SGX: Y92) had released its full-year results for 2013 yesterday evening.

The company’s main market is in Thailand and it makes and sells beer, spirits, non-alcoholic beverages, and snacks.

The stock market here in Singapore seems to have given a big thumbs-up to the company’s results. As of the time of writing (28 Feb 2014, 2:25 pm), Thai Beverage’s shares are up 8.8% to S$0.555 even as the Straits Times Index (SGX: ^STI) is down by 0.1% to 3,093 points.

Here are 10 quick facts about the company’s earnings release for the 12 months ended 31 Dec 2013:

1. Revenue is down by 3% in 2013 from THB161 billion in 2012 to RHB156 billion mainly as a result of a decrease in sales from its beer and non-alcoholic beverage business. On the other hand, a slight increase in revenue from its spirits and food business had helped to mitigate the negative impacts.

2. Profits were down by 33% from THB28.5 billion to THB19.1 billion. The main reason for the drop in reported profits was due to a one-off gain of THB12.7 billion recorded in 2012 that’s related to the upward revision in the value of Fraser & Neave’s (SGX: F99) assets after Thai Beverage had acquired a 29% stake in F&N back in the third quarter of 2012.

3. Excluding the one-off gain of THB12.7 billion, Thai Beverage’s profits had actually grown by 18% in 2013 from THB16.1 billion to THB19.0 billion.

4. During the year, there was a reduction to 20% in the corporate income tax rate in Thailand from 23% in 2012. This could provide a tailwind for the company to improve its net profit margins going forward. The Thai government had lowered corporate taxes to “promote the competiveness on the global market” according to Thai Beverage.

5. Meanwhile, changes have been made to the alcohol excise tax in Thailand which came into effect from 4 Sep 2013 onwards. The important thing to know is that the changes have increased the excise tax rate for the company’s products.

6. Sales volume had decreased across the board for the company’s product lines except for the Oishi segment. The Sermsuk line of products saw the biggest drop in sales volume from 1,298 litres to 879 litres mainly because Sermsuk started launching new products of its own after terminating the sale of long-standing licensed brand products in Nov 2012.

7. Dollar sales for its four business segments were a mixture of growth and declines. The Spirits and Food segment both saw an increase in revenue for the year; the former’s sales went up 7.3% to THB93.2 billion while the latter’s improved by 12.4% to THB5.32 billion. Elsewhere, Beer and Non-alcoholic Beverages had shrinking revenue. Sales from the Beer segment dropped by 4.2% to THB34.4 billion with the Non-alcoholic Beverage segment (which contains the Sermsuk products) seeing a steep plunge of 40% in revenue to THB28.3 billion.

8. Thai Beverage’s balance sheet has improved a great deal compared to a year ago. For instance, its cash holdings had gone up from THB4.55 billion to THB5.10 billion even as its total borrowings had decreased from THB104.2 billion to THB67.7 billion.

9. The company’s balance sheet had managed to strengthen mainly due to a capital reduction in cash from Fraser & Neave which came up to THB33.3 billion. The cash received was used by Thai Beverage to pay off some of its loans, hence improving its balance sheet.

10. Annual dividends for 2013 come up to THB0.44 per share, up from THB0.42 in 2012. This translates into a trailing dividend yield of 3.1% at Thai Beverage’s current share price. In addition, Thai Beverage’s shares are currently valued at 18 times earnings.

Foolish Bottom Line

The decrease in sales volume in the company’s products bears some watching. The overall Thai economy had slowed down in 2013 (in addition to the ongoing political turmoil there), which would likely have negatively impacted on Thai Beverage’s business.

At the same time, the increase in excise taxes might mean an increase in prices of its products for which it’s unable to pass on to customers. Back in Thai Beverage’s third quarter earnings release for 2012, it mentioned that it had managed to “pass on the tax increase to its customers directly” when the Thai government had made changes to excise taxes back in 22 August 2012. Can it continue doing so?

A sustained trend (either upwards or downwards) in the sales volume of Thai Beverage’s products could perhaps give investors clues on how much pricing power its products actually have. And that’s something important for investors to think about.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.