SINGAPORE (June 10): DBS Equities Research continues to rate Thai Beverage (ThaiBev) at “buy” with an unchanged target price of 91 cents.
DBS recently took ThaiBev on a week-long non-deal roadshow to meet European investors, which saw the group reaffirmed its regionalisation strategy, instilling confidence in the research house that it is evolving into a leading regional beverage player in Southeast Asia.
ThaiBev continues to leverage on its dominant Thai domestic alcohol operations for strong cashflow support, as it pursues its regional expansion, namely in Vietnam and Myanmar.
In a Monday report, lead analyst Andy Sim says, “Its acquisition of Grand Royal seems to be reaping fruits, while for Sabeco, we believe there is potential for marked improvement in the medium term. While gearing is currently high, we believe deleveraging will occur given its cashflow generation ability.”
Therefore, DBS is projecting earnings growth of about 12/13% for FY19/20, on the back of gradual recovery in the Thai domestic market, increased contribution from overseas operations, and lower losses from the group’s non-alcoholic beverages.
During the roadshow, questions centred around domestic consumption and consumer sentiment, and impact on spirits and beer operations; growth potential within and outside of Thailand; gearing and dividend outlook, as well as other matters.
ThaiBev said that spirits consumption has been weak since the mourning period in Thailand, and due to weak farm income. But the group guides that Thai domestic spirits is likely to grow in the low single digit over the longer term, given the relatively high per capita domestic consumption of about 10 litres/capita and its high market share of over 90%.
As for the beer market in Thailand, the group’s market share has increased to about 40% now, from about 28% before the relaunch of Chang Beer in August. ThaiBev’s goal is to be the market leader with a 45% market share by September 2020.
“After the successful rebranding since Aug 2015 and strong gain in market share, we believe the focus on sell-through and on-the-ground activities is the right track. However, the goal of achieving an additional 5 ppts in market share seems challenging in light of the nearing timeline,” says Sim.
Over in Myanmar, Grand Royal is performing well and targets to achieve 10% growth. Its current market share is estimated to be over 70%.
And in Vietnam, Sabeco is focusing on transforming Saigon Special to be the key brand and “Pride of Vietnam”. Management targets 8% and 7% growth in revenue and net profit for FY19, respectively.
Meanwhile, ThaiBev’s management has refinanced and converted acquisition loans into long term debentures, amounting to a total of 180 billion Baht, with varying maturities and the average maturity is 5.2 years with an average interest rate of 3.2%.
Net debt/EBITDA is also rather higher at the moment at over 5 times, due to its recent acquisitions of Sabeco, Grand Royal and KFC.
See: ThaiBev gears up to fund growth, debt level seen as manageable
The group’s dividend policy is to pay out no less than 50% of net profit, and it paid 53% of net profit in FY18.
“We estimate ThaiBev to generate about 10-12 billion Baht in net cash each year over the next few years, after capex and dividends. Interest cover remains relatively healthy at >5x. There are two major maturities of debentures amounting to about 45 billion Baht each in 2021 and 2022. We believe the company is likely to refinance part of it (about 30 billion Baht each), and pare down a portion with cash generated from its domestic operations,” says Sim.
As at 3.05pm, shares in ThaiBev are trading at 82 cents or 3.6 times FY19 book with a dividend yield of 2.6%.
