DBS Group Research analysts Andy Sim and Chee Zheng Feng have kept their “buy” call on Thai Beverage (ThaiBev) Y92 as they see the food and beverage (F&B) group as the “undisputed market leader” in Southeast Asia (SEA).
In their report dated March 16, Sim and Chee note that ThaiBev’s portfolio of alcoholic and non-alcoholic beverages including Chang, Grand Royal, and Oishi green tea, have been dominant brands in their respective geographies in the past decade. Along with the group’s exposure in the food businesses with franchises for KFC and Starbucks, this makes them an undisputed market leader in SEA.
The analysts are also remaining positive on the counter on the back of its resilient operations along with tailwinds from reopening, uplift in domestic consumption, and ceding inflationary pressure.
With global post-pandemic travel picking up, and as Thailand celebrates its first Songkran on April 22 without Covid-19 restrictions, the future of ThaiBev’s spirits business remains resilient, the analysts note.
“We expect strong beer volume in the lead-up to 3QFY2023 [ending September] helped by the first Song Kran celebration (April) in three years without Covid restrictions. Apart from higher domestic demand, we also see return of tourists as a key beer sales volume driver,” they say.
Profitability for the segment is expected to remain intact with the uptick in demand for higher-margin brown spirits.
See also: Analysts keep 'buy' call on ThaiBev following FY2022 earnings improvement
This sentiment is further supported by the reopening of China and robust GDP growth.
However, growth might fall short of expectations if inflation continues to remain high in Thailand and the economy slows more than expected in Vietnam, analysts cautioned. Margins might also fall short of expectations if competition remains intense and management maintains its high A&P spend to defend market share.
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Following ThaiBev’s weaker-than-expected earnings for the 1QFY2023, shares in the group fell. The dip in ThaiBev’s share price was also due to concerns on potentially slower growth in Vietnam given the economic headwinds in the country.
That said, the analysts see room for re-rating driven by the group’s resilient spirits business and growing beer business.
“Our positive thesis is on the back of sequential improvement in spirits volume sales; robust Thailand beer volume sales with return of tourists; and beer volume recovery in Vietnam with margin expansion in FY2024,” write Sim and Chee.
“While Vietnam’s economy has been impacted by global trade headwinds towards end of 2022, its purchasing manager’s index (PMI) has rebounded sequentially in the past two months to 51.2 in the month of February, up from the recent low of 46.4 in December 2022,” they add.
Furthermore, with the 14% retreat in ThaiBev’s share price in the past month, the analysts say they “see opportunity” for entry into ThaiBev as its valuation is at an attractive P/E of 13.7x, or -1 standard deviation (s.d.) below its five-year historical average.
In their report, the analysts have lowered their target price slightly to 86 cents from 87 cents. The small drop in their target price is based on a sum-of-the-parts (SOTP) valuation, with core operations valued using discounted cash flow (DCF) and associate stakes at market value.
“Despite facing higher cost pressure, we project the group to eke out ebit y-o-y growth of [around] 3%/ 6% in FY2023/ FY2024 after a robust FY2022 (+14.2%),” they say.
Shares in ThaiBev closed flat at 62 cents on March 16.
