Ichitan Group: A Comprehensive Analysis by Maybank Securities (Thailand) PCL

November 21, 2024

Introduction to Ichitan Group

Ichitan Group, a notable player in the ready-to-drink (RTD) tea industry, has captured attention with its recent strategic moves and financial performance. This report, prepared by Maybank Securities (Thailand) PCL, delves into Ichitan Group’s market position, growth strategies, and financial outlook. As the second-largest player in the RTD tea sector, holding nearly 30% market share, Ichitan Group has demonstrated resilience and adaptability in a competitive market.

Market Position and Growth Strategies

Ichitan Group has carved out a significant niche in the RTD tea market, with its market share increasing from 28.6% in 2020 to 29.9% in 2023. This growth is attributed to its competitive pricing strategy and expanded sales channels. The company has successfully penetrated traditional trade (TT) channels, where its pricing strategy plays a crucial role in attracting consumers. The penetration rate for its most popular product stands at 65%, indicating room for further growth.

Financial Performance and Projections

Ichitan Group’s financial health is robust, with a forecasted sales and core profit compound annual growth rate (CAGR) of 7% and 9% respectively for FY25-26E. Despite slower growth compared to FY24E due to cooler weather impacts, the company is poised for sustainable earnings. The group’s focus on conservative capacity expansion and lower raw material costs underpins its gross profit margin (GPM), projected to remain high.

Expansion and Diversification

While Ichitan Group has made strides in the domestic market, its overseas expansion, particularly in Cambodia, Laos, and Vietnam, presents challenges. Export sales have been declining since 2019, but efforts are underway to find new distributors and enhance marketing strategies. The joint venture with PT Atri Pasifik in Indonesia is expected to bolster earnings contributions following strategic price adjustments and product rebranding.

Product Portfolio Diversification

Ichitan Group has diversified beyond its core RTD tea products to include non-tea beverages like alkaline drinks, sugar-free carbonated beverages, and energy drinks. This diversification has resulted in a 42% CAGR in non-tea sales from FY21-23, aligning the company with evolving consumer preferences and expanding its customer base, particularly among Gen Z consumers and blue-collar workers.

Financial Analysis and Dividend Policy

The company’s strong balance sheet, characterized by a net cash position and robust earnings growth, supports an attractive dividend yield of 7-8% for FY24-26E. Ichitan Group has maintained a dividend payout ratio of over 100% since 2018, reflecting its commitment to rewarding shareholders.

Risks and Challenges

Despite its strong market position, Ichitan Group faces risks such as increased competition in the RTD tea market and the potential impact of its founder, Mr. Tan Passakornnatee, being closely identified with the brand. In response, the company continues to invest in product development and market adaptation to mitigate these challenges.

Conclusion

The comprehensive analysis by Maybank Securities (Thailand) PCL underscores Ichitan Group’s strategic positioning and growth potential in the RTD beverage market. With a focus on competitive pricing, market expansion, and product diversification, Ichitan Group is well-positioned to navigate the challenges and opportunities in the evolving beverage landscape.