SINGAPORE (Aug 15): DBS Group Research is keeping Thai Beverage at “buy” with target price of 94 cents saying the group’s potential of evolving into a regional beverage player remains intact although its share price is expected to remain volatile given weak domestic consumption.
To recap, ThaiBev’s 3Q18 results was weak as expected. Earnings fell 61% y-o-y largely due to the absence of fair value gains recognised in the same quarter a year ago by associate F&N on an investment in Vinamilk which amounted to THB 8.5 billion.
See: Thai Beverage reports 61% fall in 3Q earnings to $248 mil on weak spirits sales and absence of fair value gains
Excluding that, core net profit would have declined by 11% y-o-y to THB 6 billion, largely due to weaker than expected performance from its spirits business.
Group revenue came in at THB 60.7 billion, an increase of 34.1% y-o-y on the back of increased contribution in beer due to acquisition and consolidation of Saigon Beer (Sabeco), food business but offset partially by decline in its spirits revenue and non-alcoholic beverages.
In a Wednesday report, DBS lead analyst Andy Sim says he remains hopeful for things to gradually turn around for ThaiBev on the back of improving agricultural prices and farm income although ThaiBev says overall domestic consumption still looks weak.
In a change from 2Q18, spirits registered a surprising drop of 2.4% y-o-y, contributed by an 11.2% decline in sales volume in Thailand. Including contribution from Grand Royal, total spirits’ sales volume registered an increase of 1.3% y-o-y.
The decline in spirits’ sales volume in Thailand in 3Q18 could be partially due to some stocking up in 2Q18 prior to the implementation of an additional 2% excise, says Sim.
Together with an increase in SG&A expenses, spirits’ EBIT margins fell by 3.3 ppts y-o-y to 20%.
Revenue for beer segment was held up by the consolidation of Sabeco’s financials, leading to a doubling in revenue to THB 28.3 billion. Excluding Sabeco, beer sales volume declined by 8.9% y-o-y.
The drop was relatively smaller than anticipated comparing against data released by the Bank of Thailand showing 20-25% y-o-y drop in beer production in the months of April and May.
“We believe this could suggest stronger volumes in June on the back of World Cup events,” adds Sim.
Non-alcoholic beverages’ revenue declined by 2.7%, due to decline in sales volume, offset partially by higher sales of drinking water and carbonated soft drinks. Net loss for the segment widened by 33% y-o-y to THB 286 million.
Continuing the trend from 2Q18, revenue for food segment jumped to THB 3.6 billion, largely from increase in restaurants along with the recent acquisitions. Net profit contribution however remained relatively small at THB 32 million.
As at 11.48am, shares in ThaiBev are trading 1.5 cents lower at 68 cents, implying about 15 times FY19F earnings.
