SINGAPORE (Feb 16): CIMB is maintaining its “add” recommendation for Thai Beverage as demand for its key product lines appear to be seeing improvement.
According to CIMB’s analyst Jonathan Seow, ThaiBev’s Chang beer continued to perform well, amid lower malt raw material prices, lower bottling packaging costs that have better recyclable rates, and higher selling prices.
In fact, Seow believes gross profit margins for ThaiBev’s beer segment could continue to hover at 23% levels given that ThaiBev has locked in lower raw material costs and some packaging costs for the next 12 months.
Despite competition from Boon Rawd’s newly launched U beer, Chang beer’s market share remained at 40% and continues to be on target to reach a 45% market share by 2020, according to ThaiBev’s management.
The group explained that initial feedback on U beer had been poor, citing a milder flavour. On top of that, ThaiBev has also been stepping up on its social media marketing efforts to counter the marketing from U beer.
Over at its spirits business, ThaiBev pointed out that the weak sales volumes — which fell 10.8% in 1QFY17 — were due to the mourning season, given that its market share had remained unchanged.
The trend of consumers switching from brown spirits to white spirits with a lower selling price also appeared to be slowing down. “Consumption appears to have bottomed out and should pick up from hereon, in our view,” said Seow.
Meanwhile, the group’s corporate restructuring of Fraser & Neave and Frasers Centrepoint is on track to be completed within the year.
Seow also expects the group to make a sizeable acquisition given that its gearing level remains low.
The brokerage has a target price of $1.07 for the stock.
Shares in ThaiBev are trading 1.5 cents higher at 95.5 cents on Thursday.
