DBS Group Research analyst Andy Sim and the Singapore research team have re-initiated coverage on Thai Beverage (ThaiBev) with a “buy” recommendation and a target price of 84 cents.
Calling the counter one of the “most valuable” large-cap Asean food and beverage (F&B) counters, Sim says ThaiBev is transforming into the region’s leading beverage player and has gained market share in its key markets of Thailand and Vietnam.
“We project [ThaiBev’s] upcoming 2HFY2022/FY2022 net profit to show [around] 4%/9% y-o-y growth, despite concerns on raw material cost pressures,” Sim writes.
“We expect robust performance from its beer and food segments, on the back of easing restrictions in both Thailand (beer, food) and Vietnam (for beer). We also expect the growth momentum to continue into FY2023 on the reopening momentum, aiding in sales growth, though this will be partially negated by the effects of rising costs,” he adds. “Overall, we project net profit growth of 6.6%/5.6% for FY2023/FY2024.”
Even without the proposed spin-off listing of ThaiBev’s brewery unit, BeerCo, ThaiBev’s net debt-to-equity (D/E) ratio is projected to hit 0.5x by end-FY2024.
“[ThaiBev’s] rising interest costs are very much mitigated with its well-termed-out debentures and we see limited risks of refinancing, on the back of its strong and stable operating cash flow,” Sim writes.
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“Even without the initial public offering (IPO) of its planned BeerCo assets (i.e., beer assets in Thailand and Vietnam), the market’s concerns about its gearing may be misplaced,” he continues, noting that the group has managed its debt maturities “well”.
“Over the next two years, debentures amounting to only 22 billion baht ($841.7 million) – 26 billion baht are due, which can be repaid with its strong yearly operating free cash flow of an average of at least 36 billion baht each year,” Sim points out.
“Based on our projections, we see that its gearing continues to edge down with the group’s net gearing, which is expected to drop to 0.5x by end-FY2024 from 0.8x in FY2022… Furthermore, ThaiBev has recently issued debentures worth 13 billion baht, with an average coupon of 3.55%, which is commendable in this current environment,” he adds.
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Meanwhile, Sim is projecting ThaiBev’s net-debt-to-ebitda (including associates) is to drop to 2.3x, from 3.5x estimated for FY2022 as well.
At its current share price, Sim notes that ThaiBev’s valuation is “attractive” at 14.0x its FY2023 P/E, -1 standard deviation (s.d.) from its five-year mean forward average.
The analyst adds that he sees “resilient demand” for ThaiBev’s products on the back of the reopening and domestic demand in its key markets, despite the global uncertainties and macro headwinds.
“Thailand is expected to benefit from tourism revival and domestic demand, and while Vietnam has seen [a] strong revival in 2022, its robust GDP growth should continue to drive alcohol consumption,” he says.
Shares in ThaiBev closed 1 cent higher or 1.63% up at 62.5 cents on Nov 18.
