Thai consumer stocks face renewed headwinds. Is a turnaround in sight?

What happened?

The share prices of Thai consumer companies’ Singapore Depository Receipts (SDRs) have been weak in the past month. 

If you have been following the share price performance of Airports of Thailand SDR and CP All SDR, you might have noticed the declines since the middle of November. 

For example, the share price of Airports of Thailand SDR has fallen to S$2.22 as of 1 December from S$2.62 on 17 November 2023. This represents a share price decline of close to 15% within about two weeks. 

Likewise, the share price of CP All SDR has fallen to S$1.97 as of 1 December from S$2.17 on 17 November 2023. 

Compared to its 52-week high of S$2.56 on 23 August, CP All SDR’s share price has fallen by more than 20%. 

Like the Thai SDRs, the share price of Thai Beverage also reached a 52-week low of  S$0.49 on 4 December.

Let us find out what may be driving the weakness in the share prices of these Thai consumer companies, and if there might be better days ahead. 

Airports of Thailand – Chinese tourist arrivals have not recovered as much as hoped

#1 – AOT’s revenue recovered further in recent quarter 

AOT’s revenue grew in the fourth quarter of fiscal year 2023 (4Q FY2023) compared to the previous quarter, driven by a recovery in tourist arrivals in Thailand. 

The company reported revenue of THB 15.4 billion in 4Q FY2023, an increase of close to 19% compared to the previous quarter. 

This would bring its total revenue in the fiscal year ending 30 September 2023 (FY2023) to THB 48.1 billion, close to three times its revenue in the previous fiscal year (FY2022). 

The increase in revenue was driven by a broad-based recovery across all its key business segments. 

In particular, departure passenger service charges (PSC) surged to THB 17.9 billion in FY2023 from THB 5.3 billion in FY2022. 

This was driven by an increase in both international and domestic passenger movements in FY2023 compared to the previous year. 

#2 – AOT’s profit has grown in tandem with rise in revenue

With the higher reported revenue, AOT’s profit also grew to THB 3.4 billion in 4Q FY2023 from THB 3.2 billion in 3Q FY2023.

This brought AOT’s total net profit in FY2023 to THB 8.8 billion, reversing from a loss of THB 11.1 billion in FY2022. 

AOT has been able to keep its costs under control even as revenue has bounced sharply. Its total expenses grew by just 17% in FY2023 compared to the previous year. 

#3 - Tourist arrival recovery has stalled 

Despite the higher revenue and profit reported in FY2023, investors appear concerned about the slower than expected recovery in tourist arrivals in recent months. 

Tourist arrivals in Thailand have fallen to 2.2 million in October from 2.5 million in July.

This is largely driven by weakness in Chinese tourist arrivals, as China’s slowing economy has led to lower spending on tourism.

The Tourism Authority of Thailand (TAT)’s currently forecasts just 3.4 million to 3.5 million visitors from China in 2023, below its earlier target and remaining significantly below the 11 million visitors in 2019.

In additional, TAT’s deputy governor for international marketing in Asia and South Pacific also attributed the weaker than expected numbers to lower tourist confidence with a recent mall shooting in Bangkok. 

As tourist arrival growth in Thailand has stalled, AOT’s passenger volume has also plateaued at about six to seven million per month, remaining close to 30% below the pre-pandemic levels. 

CP All – Delay in government stimulus impacting sentiment 

#1 – Revenue fell in third quarter compared to previous quarter

CP All reported revenue of THB 226 billion in the third quarter of 2023 (3Q 2023), a 6.0% increase compared to the previous year.

However, its revenue was 3% lower in 3Q 2023 compared to the second quarter of 2023 (2Q 2023). 

The lower revenue was driven by a fall in the average daily sales per store to THB 79,308 in 3Q 2023 from THB 83,558 in 2Q 2023. Both the number of customers per store per day as well as the spending per ticket fell in 3Q 2023 compared to 2Q 2023.

This was partly offset by CP All’s continued store expansion, with 553 new stores opened in the first nine months of 2023. This would put CP All on track this year to exceeding the 704 stores opened in 2022.  

#2 – Profit was flat in the third quarter 

Despite the fall in revenue in 3Q 2023 compared to the previous quarter, CP All was able to keep its net profit stable at THB 4.4 billion in 3Q 2023. 

CP All’s gross margin (excluding Travel & Entertainment) remained resilient at 27.0% in the third quarter, as margins held up across both the foods and non-foods segments. 

In addition, the company was able to keep its sales, general and administration (SG&A) expenses low at 19.6% of sales in 3Q 2023 with stringent cost control. 

#3 – Concerns on potential delay in government stimulus 

CP All has benefitted from the improvement in consumer sentiment in Thailand and increase in consumer spending, as reflected in its improved profitability in recent quarters. 

According to data from the University of the Thai Chamber of Commerce, the consumer confidence index in Thailand reached 60.2 in October 2023, the highest level since February 2020.

This was driven by higher foreign tourist arrivals, as well as improved consumer sentiment in anticipation of rollout of government stimulus policies.

However, investors appear to be concerned that tourist arrivals are showing signs of stalling, after the robust recovery earlier this year. 

In addition, the rollout of the digital wallet handout scheme which aims to give THB 10,000 (S$377) in handouts via digital wallets to more than 50 million people has been delayed.

According to Thailand’s Deputy Finance Minister, the government needs more time to work on the scheme. 

In addition, economists have raised concerns about an increase in government debt to fund the handout. 

Earlier, Thailand’s Prime Minister Srettha Thavisin announced plans to borrow THB 500 billion (S$18.8 billion) to facilitate the handout. 

This represents a reversal from the government’s original plans to fund the handout from the government budget. 

What would Beansprout do? 

Despite the decent results reported by AOT and CP All in the latest quarter, their share prices have fallen due to various investor concerns. 

Firstly, tourist arrival growth in Thailand appears to have stalled, as the recovery in Chinese tourist arrivals has fallen short of expectations.

In addition, the rollout of government handouts to boost consumer spending also appears to be facing roadblocks. 

Apart these industry headwinds, Thai Beverage’s performance was also been dragged by lacklustre demand for beer in Vietnam and heightened competitive pressure. 

To reverse the weakness in the share price of these Thai consumer stocks, we may need to see signs of a further recovery in Chinese tourist arrivals, as well as more clarity on how the government intends to stimulate the economy. 

With the recent selloff, it is also worth noting that the valuation of CP All has fallen to multi-year lows. 

Based on its forward price-to-earnings (P/E) ratio of 23x as of 5 December 2023, CP All is currently trading at close to 2 standard deviation below its five-year historical average. 

The AOT SDR and CP All SDR were launched on the Singapore Exchange earlier this year.

This means that you can now gain access to AOT and CP All in the same way that you are buying and selling a Singapore stock through a trading platform which offers access to the Singapore Exchange. 

If you are interested to learn more about AOT, read our in-depth write-up about the company here. 

If you are interested to learn more about CP All, read our in-depth write-up about the company here. 

To find out more about Singapore Depository Receipts, read our introduction to the product here.