Flash Equity Report /
Thailand

Asian liquor stocks may raise the spirits after the virus carnage

  • Liquor is the ultimate defensive investment

  • Although liquor stocks have been devastated by the sell-off...

  • ...They may be revalued in a weak market as defensives may now be favoured

Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Follow
Tellimer Research
16 March 2020
Published byTellimer Research

The market reversal in the past fortnight has been sudden and brutal. The mood has shifted decisively from bullish to bearish.

Investors may currently be drowning their sorrows with the recent sell-off. But the Asian liquor sector could be one of the first to raise the spirits, when the virus eventually shows signs of being contained. In table 1 below we have also included some global giants that have a heavy Asian exposure.

Recent performance of Asian-focused liquor stocks

Source: Bloomberg

Four reasons to think the glass is half full for liquor stocks:

1. Liqour stocks are the ultimate defensive play. Their earnings are independent of the business cycle. People drink in good times and bad times, particularly spirits. During the 1997-98 Asian crisis, Asian spirits consumption rose 4% per annum, despite the contraction in many overall economies.

2. The oil price collapse has dominated the headlines, but the soft commodities rout is equally significant. Liqour stocks use molasses and barley. The inputs for these products include sugar, which is the single largest ingredient in spirits production. 

The sugar price has dropped by as much as crude oil. It is down 33% in the past week. This should buttress the operating margins of both spirits and beer producers.

3. Several liquor players pay generous dividends. Yields are about 3% on average, which starts to look even more attractive as it is now more than three times the US risk-free rate (10-year T-Bills).

4. There may be some corporate action as ABInBev’s Asian business has built up a war chest of US$1 billion. ABInBev’s recently listed arm, Budweiser APAC, has hinted it may look for acquisitions of regional brewers. THBEV SP (Buy, TP SGD1.30) is a potential target, in our view.