SINGAPORE (May 13): Analysts are keeping largely upbeat on Thai Beverage (ThaiBev), despite a 12.2% drop in 2Q earnings to THB 5.79 billion ($250 million) on the back of lower net profit from its spirits and food businesses.
In addition, net profit from F&N/Frasers Property was down 44% to THB 465 million, from THB 828 million a year ago.
See: ThaiBev 2Q earnings fall 12% to $250 mil due to poorer spirits and food businesses
However, RHB Group Research analyst Juliana Cai believes the earnings decline comes as no surprise.
“The drop in PATMI was anticipated, as trade agents loading up on inventory from its spirits business,” says Cai in a Monday report. “This, in turn, was due to prices increases in April 2018 following the implementation of an Elderly Fund tax.”
RHB is keeping its “buy” call on ThaiBev with an unchanged target price of 92 cents.
The way Cai sees it, potential upside could come from Saigon Beer Alcohol Beverage Joint Stock Company (Sabeco) and the non-alcohol beverage (NAB) segment.
CGS-CIMB Research analyst Cezzane See agrees that beer margins may improve ahead due to better Sabeco operations.
She notes that Sabeco’s 1Q19 revenue had grown by 19% while net profit rose 9.6% y-o-y on higher product volume and price increases – well ahead of ThaiBev’s budgeted revenue growth estimate of 7% y-o-y for CY19F.
“Margins are expected to continually improve as costs are rationalised and procurement processes are optimised,” See says in a report on May 11.
CGS-CIMB is keeping its “add” call on ThaiBev and raising its target price to 94 cents, from 90 cents previously.
Despite a strong year-to-date share price performance, bouncing up strongly by close to 45%, from a low of 57 cents late last year, DBS Group Research is also maintaining its positive stance on the counter.
“While 2Q19 seemed weak, the strong 1Q19 performance led to robust earnings growth of close to 40% in 1H19,” says lead analyst Andy Sim in a Monday report.
DBS is keeping its “buy” call on ThaiBev with a higher target price of 91 cents, from 87 cents previously.
“The market could be skeptical of its high gearing after a series of acquisitions,” says Sim. “[However,] based on our estimates, we believe management has termed out its borrowings and will be able to repay/refinance its obligations with its strong cashflow.”
“We continue to believe in the recovery in the Thai domestic market, coupled with the drive towards regionalisation and diversification of the group over the medium term,” he adds.
UOB Kay Hian analyst Lucas Teng, however, expresses concern that ThaiBev’s sales volume recovery appears to be progressing at a slower pace.
In addition, he believes that the group’s expansionary plans for the food segment are a drag.
“The group continued to expand its KFC stores. However, the new stores have impacted profits (which fell 38.6% y-o-y),” he says.
“Sabeco longer-term prospects remain positive but will likely take a while for contribution to improve,” he adds. “We are still weary of higher promotions and selling expenses which were up in the quarter as well as costs incurred from a ramp-up in capacity.”
UOB is maintaining its “hold” recommendation on ThaiBev, and lowering its target price slightly to 85 cents, from 86 cents previously.
As at 4.08pm, shares in ThaiBev are trading 7.3% lower, or down 6 cents, at 76.5 cents. Year-to-date, shares in ThaiBev are trading 26% higher.
According to DBS valuations, this implies a price-to-earnings (PE) ratio of 19 times and a dividend yield of 2.4% for FY19F.
