UOB Kay Hian Private Limited
Date of Report: Monday, 16 June 2025

Thai Beverage Faces Headwinds: Vietnam Alcohol Tax Hike and Evolving Market Forces Impact Outlook

Overview: Broker Maintains HOLD as Thai Beverage Navigates Tax Hikes and Muted Growth

Thai Beverage Public Company Limited (THBEV), Thailand’s largest beverage producer and market leader in spirits, is under increased pressure as Vietnam implements a steep series of special consumption tax hikes on beer and other alcoholic beverages. This development comes against a backdrop of already challenging market conditions, prompting UOB Kay Hian to maintain a HOLD recommendation and lower its target price from S\$0.51 to S\$0.45, reflecting a slightly negative outlook for share price performance.

Key Stock Data and Recent Performance

• GICS sector: Consumer Staples
• Share price (as of report): S\$0.46
• Target price: S\$0.45 (previously S\$0.51)
• Market cap: S\$11,560.0 million (US\$9,015.1 million)
• Shares issued: 25,130.5 million
• 52-week high/low: S\$0.595/S\$0.425
• Major Shareholder: Charoen Sirivadhanabhakdi (65.9%)
• 3-month average daily turnover: US\$10.5 million

Performance over the past year has been underwhelming, with the stock down 13.8% year-on-year and a year-to-date drop of 4.8%. The recent one-month and three-month returns have shown some improvement, up 6.4% and 4.2% respectively.

Vietnam’s Alcohol Tax Shock: What’s Changing?

Vietnam’s National Assembly recently approved a significant increase in the special consumption tax on alcoholic beverages, with the stated aim of raising state revenues and curbing alcohol consumption. This move will see the tax rate on beer and strong liquor rise by 5 percentage points annually from the current 65% to 70% by 2027, reaching 90% by 2031. For liquor with less than 20% alcohol content, the tax will rise from the current 35% to 40% by 2027, and then to 60% by 2031.

Vietnam is the second-largest beer market in Southeast Asia, and these tax hikes directly impact domestic beer products, notably those produced by THBEV’s Vietnam subsidiary, Sabeco.

Business Impact: Beer Sector Braces for Softer Volumes

With the beer sector in Vietnam already hit by stringent drink-driving laws introduced in 2019 and shifting consumer preferences, the new tax regime is expected to further dampen beer consumption volumes in the medium to long term. Thai Beverage is anticipated to fully pass on the excise tax increases to consumers, which would result in mid- to high-single-digit percentage price hikes for beer with each 5 percentage point tax increase. This is likely to cause a decline in beer volumes starting FY27.

For FY26, there may be a temporary boost in beer sales as customers frontload inventory ahead of the tax increase. According to the latest 2QFY25 results, approximately 15% of THBEV’s annual revenue and 7% of annual PATMI (profit after tax and minority interest) are derived from Sabeco.

Key Financials: Solid Fundamentals, Muted Growth Prospects

Segment Analysis: Spirits, Beer, and More

Spirits Segment: Recovery Delayed, Margin Support from Raw Material Costs

The spirits business is expected to see sales volume improvements in the second half of FY25, but growth is likely to be in the low single digits due to ongoing macroeconomic uncertainty and a weakening domestic economy. Segmental margins should stabilize in 3QFY25 thanks to lower advertising and promotion (A&P) spending, with further improvement anticipated in 4QFY25 as raw material costs (notably for molasses) fall by 10-20% compared to the previous crop.

A potential downside risk comes from consumers downtrading from higher-value brown spirits to cheaper white spirits, leading to an unfavorable product mix.

Beer Segment: Facing Headwinds Despite Short-Term Tailwinds

The outlook for the beer segment remains pessimistic due to macroeconomic pressures and the expected impact of higher taxes in Vietnam. Sabeco, THBEV’s Vietnam subsidiary, is particularly vulnerable. However, there may be partial offsets from seasonal sales boosts during festive periods such as Songkran and increased tourist arrivals. Management also notes successes in securing lower raw material costs and a reduction in A&P spending, which may help support margins through the remainder of FY25.

Earnings Revision and Risks

• FY26–27 PATMI estimates have been adjusted slightly by 0–1% due to revised assumptions for beer sales volumes.
• New PATMI forecasts: FY25 at Bt26,870m (unchanged), FY26 at Bt28,644m (previously Bt28,520m), FY27 at Bt29,636m (previously Bt29,745m).

Valuation and Recommendation: HOLD Maintained, Target Price Lowered

UOB Kay Hian maintains a HOLD rating on THBEV with a revised SOTP-based target price of S\$0.45 (down from S\$0.51). This reflects lower valuation multiples for most business segments due to weaker peer EV/EBITDA benchmarks. Thai Beverage is seen as fairly valued at current prices, but muted earnings growth and a challenging outlook are likely to constrain share price performance.

SOTP Valuation Breakdown (new methodology, FY25F EV/EBITDA multiples)

Potential Catalysts for Share Price Upside

• Market share gains in the beer segment
• Mergers & acquisitions or potential spinoff listings
• Stronger-than-expected growth in the spirits business

Profit & Loss, Balance Sheet, and Key Metrics Summary

Conclusion: Navigating Uncertainty Amid Regulatory and Market Pressures

Thai Beverage faces headwinds from rising taxes in Vietnam and persistent macroeconomic challenges. While the company remains a market leader with a diversified beverage portfolio and resilient fundamentals, near-term growth prospects are muted. Investors are advised to watch for potential catalysts such as market share gains, M&A activity, or a strong rebound in spirits sales, but should temper expectations given the current regulatory and market landscape.