UOB Kay Hian analyst Llelleythan Tan has maintained his “buy” recommendation on Thai Beverage ThaiBev) after the beverage group released its business update for the 1QFY2022 ended December.
According to Tan in his Feb 15 report, the group’s results stood in line with his estimates.
On Feb 14, ThaiBev reported sales revenue of 77.12 billion baht ($3.20 billion), 7.4% higher y-o-y due to broad-based improvements across its segments.
EBITDA for the 1QFY2022 climbed 1.6% y-o-y to $14.66 billion thanks to a surge in EBITDA under the non-alcoholic beverages (NAB) and food segments and higher EBITDA in its beer segment. EBITDA for ThaiBev’s spirits segment was dragged down by rising material costs from molasses.
ThaiBev’s management expects the cost of molasses for the rest of the current season to be lower y-o-y.
“To combat rising material costs, we opine that the group may execute its plan to increase average selling prices (ASPs) for its white spirits in 2QFY2022,” says Tan.
See also: Test debug host entity
The surge in NAB EBITDA was due to ThaiBev’s effective cost control measures, while the increase in food EBITDA was thanks to the return of dine-in traffic to restaurants. The higher beer EBITDA was due to the recovery seen in its key market of Vietnam, which saw a recovery in its economic activity.
The robust y-o-y growth within the beer segment is also attributed to the low base in the same period the year before, as bars and entertainment venues were shut at the time.
“With Vietnam and Thailand reopening their international borders and easing more social restrictions, ThaiBev’s beer segment is set to outperform from 2QFY2022 onwards,” says Tan.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
The group’s food segment is also expected to see improvements in its revenue and EBITDA moving forward, and is estimated to see positive net profit in the FY2022 on the back of easing restrictions.
To this end, Tan has raised his earnings estimates for the FY2022 to FY2024 by 2.8% (FY2022), 3.9% (FY2023) and 5.0% (FY2024) after accounting for better sales volume and margin assumptions for both the food and beer segments.
He has also upped his target price to 90 cents from 85 cents previously due to his higher FY2022 beer and food EBITDA estimates.
“We opine that ThaiBev remains attractively priced at below -1 standard deviation to its average five-year mean price-to-earnings (P/E), backed by an expected earnings recovery underpinned by favourable tailwinds. ThaiBev’s potential 3Q/4QFY2022 initial public offering (IPO) of its beer business may also unlock value for the group,” writes Tan.
Catalysts to ThaiBev’s share price, he adds, include mergers and acquisitions (M&As), the potential spin-off listing of its beer business, and the full reopening of bars in Vietnam and Thailand.
OCBC Investment Research (OIR) analyst Chu Peng has kept "buy" on ThaiBev with an unchanged fair value of 88 cents.
"ThaiBev is currently trading at a blended forward P/E of 14.9 times which is near 1 standard deviation (s.d.) below its five-year average of 16.8 times. We think the valuation is undemanding given the ongoing recovery of the economy and higher vaccination rates, together with ThaiBev’s strong brand name and product portfolio in Thailand and Vietnam, and effective cost controls," she writes in her Feb 17 report.
Shares in ThaiBev closed 0.5 cent lower or 0.72% down at 69 cents on Feb 17, or an FY2022 P/B of 2.2 times and dividend yield of 3.3%, according to UOB Kay Hian’s estimates.
