SINGAPORE (Nov 24): DBS is maintaining its “buy” call on Thai Beverage with a target price of $1.07 given the F&B player remains as one of its top picks in the large-cap consumer sector.
Over the longer term, DBS expects ThaiBev’s ongoing transformation to turn the group into a regional beverage player which would help to further re-rate the stock.
“We expect performance to improve on the back of recovery in consumption, post a year-long mourning period,” says lead analyst Andy Sim in a Friday report.
“We have been advocating accumulation upon share price pullbacks; and, continue to maintain this stance.”
In FY17, ThaiBev reported an 82% surge in net profit to THB34.5 billion ($1.4 billion), partly due to one-off fair value gains recognised by associate Fraser & Neave for its investment in Vinamilk.
See: ThaiBev reports 38.3% rise in full-year earnings to $1.4 bil, aided by fair value gains
Excluding the one-off, core net profit was up by 4.6% y-o-y to THB26 billion, which came within DBS’ expectations. This was despite seeing relatively slow sales in the first nine months due to the mourning period in Thailand.
In 4Q17, operating profit surged 73.5% y-o-y to THB6.4 billion which came on the back of 23.4% increase in revenue to THB47.5 billion. This is in line with DBS’ earlier expectations, given the anticipated stocking up of ThaiBev products by distributors and resellers before the tax hikes in September.
4Q17 net profit at THB5 billion registered a smaller growth compared to operating profit due to losses registered by its associates in the quarter.
Spirits posted strong 38% net profit growth in 4Q17, with segment net profit at THB5 billion. Revenue was up by 35% to THB28.6 billion, on the back of 28.7% increase in sales volume to 154 million litres, along with an estimated 4.8% ASP increase.
In FY17, revenue for spirits increased by 2.6% to THB106.5 billion, while net profit grew by 2.1% to THB20.4 billion. Operating profit margins slipped by 30 bps to 23.3% in FY17 due partly to higher advertising and promotional expenses.
On the other hand, the beer segment experienced a dip in revenue of 4.7% to THB57.3 billion in FY17, led by a 6.8% drop in sales volume to 8.45 million hectolitres. Notwithstanding the lower volume, gross profit increased by 6.4% for the year to THB13 billion, due to lower packaging and raw material costs. Net profit for the segment, however, dipped by 4% to THB3.13 billion due to higher advertising and promotion expenses.
In line with DBS’ expectations, the Non-Alcoholic Beverages (NAB) posted smaller net losses of THB855 million for FY17 from a loss of THB1.57 billion. Sim is confident losses would continue to narrow and the segment should achieve net profitability by FY19.
The group’s gearing continues to improve with net debt to equity ratio at 0.23x as of Sept 30, an improvement from 0.33x a year ago, even with recently announced proposed acquisitions.
As at 12.06pm, shares in ThaiBev are up 2 cents at 96 cents, 20.3 times FY18 earnings.
