SINGAPORE (April 10): RHB Research Institute Singapore has initiated coverage on Thai Beverage with a “buy” recommendation and a target price of $1.10.
This represents an upside of more than 17% from ThaiBev’s current trading price of 93.5 cents, as at 12.33pm on Monday.
“We expect to see an upturn for ThaiBev now that the 100-day mourning period is over; following the Songkran festival, we expect alcohol consumption to normalise,” says RHB analyst Juliana Cai. Songkran, the Thai New Year’s festival, falls on April 13, with the holiday period extending to April 15.
Having raised its market share for beer to 40% following the rebranding of Chang beer in 2015, the segment is likely to continue to be a key growth driver for ThaiBav, according to Cai.
While the bulk of the market shre gain has already been realised last year, Cai believes ThaiBev has the potential to enhance its margins through price increase opportunities, lower input costs by using a higher percentage of recycled bottles, and an improved operating leverage.
“We believe that management would use the new excise tax hike as an opportunity to raise prices, which in turn would increase gross margins,” says Cai. “As spirits form ThaiBev’s largest segment (55% to its topline and 93% of EBIT), we believe the price hike would help spirits to stage a strong recovery, with a full-year impact in FY18.”
Meanwhile, Cai says ThaiBev’s non-alcohol beverages segment, which is still in its investment phase and loss-making, could be “the next big thing” and a “future engine of growth”.
“Bottled water has been the fastest growing sub-segment amongst the non-alcohol beverages, registering more than 10% growth in volume last year. It also has the highest profitability within the non-alcohol beverage segment,” she says.
In addition, the imminent asset swap of Frasers Centrepoint (FCL) and Fraser and Neave (F&N) could result in greater cross-selling between ThaiBev and F&N, says Cai. This would allow ThaiBev to leverage on the F&N product range and distribution network in Malaysia and Singapore.
At the same time, ThaiBev has expressed an interest in acquiring Vietnam’s state-owned Saigon Beer Alcohol Beverage Corporation (SABECO) as well as raising F&N’s stake in Vinamilk.
“Notwithstanding the pending consolidation of F&N and other potential acquisitions, we expect the group to deliver a 3-year earnings CAGR of 10%,” says Cai.
