SAB update – HOLD

Saigon Beer – Alcohol – Beverage Corporation (SAB VN)

To recover in 2022 from COVID-19 negative effects – Maintain HOLD – Target Price: 151,247VND/share

SAB announced its unaudited 2021 results with a top line of VND 26,373 bn (-5.7% YoY), while its bottom line fell 20.4% YoY, reaching VND 3,677 bn.  Both top and bottom lines fell short of our expectations due mainly to the tight social distancing restrictions put in place during the third quarter of 2021 to combat the fourth, and largest up to that time, wave of COVID-19, which resulted in SAB’s revenue dropping by 53% YoY in said quarter. Furthermore, a surge in commodity prices, which include SAB’s raw key materials such as barley (+79%), aluminum (+40%), etc in 2021 has negatively affected the company’s margins, though it was lessened by:

(i) SAB’s centralized material sourcing with Thaibev; 

(ii) SAB’s production cost cutting initiatives and; 

(iii) increase product prices. 

SAB’s gross margin only lowered to 28.8% compared to 30.4%.

On the bright side, heavy spending on advertising has shown its results as SAB’s market share increased in Q4 2021. According to SAB, as COVID-19 negatively impacted average income, thus leading people to move down to lower value segment, which is SAB’s strong segment. While the data for market share is not yet available, we observed that SAB’s Q4 2021 revenues increased by 14.5% YoY while Heineken’s revenue, its biggest competitor, decreased in Q4 2021.

Moving to 2022, another huge outbreak has recently occurred in the North, most likely driven by the arrival of the Omicron variant to Vietnam. Currently the situation is still complicated with new infections discovered all over the country everyday. With that said, as most of the country has been fully vaccinated, the chance of another large-scale lock-down is unlikely. Thus while we expect some recover in SAB’s top line but it will not reach the same level as pre-pandemic level. With regards to SAB’s margins, the Russo – Ukrainian War is the key factor that will affect the company’s profitability as both countries are key raw material providers for the beer supply chain (Ukraine is 2nd biggest wheat producer and Russia is 3rd biggest aluminum producer). Thus we expect SAB to be indirectly affected and its gross margin will be slightly decrease.

For 2022, we forecast with a top line of VND 31,774 bn (+20.5% YoY) and an EAT of VND 4,462 bn (+13.6% YoY).  Using a combination of the DCF and P/E methods, our target price for SAB is VND 151,247/ share. Thus we maintain our HOLD recommendation