SINGAPORE (Sept 21): RHB Research is maintaining “buy” on Thai Beverage (ThaiBev) with an unchanged target price of 88 cents despite expectations of 4Q18 alcohol volumes to continue their decline due to the high base effect in 4Q17, which saw trade agents stocking up prior to the excise tax hike.
This is because the research house sees more upside potential than downside risks moving into FY19, as it anticipates improving rural income as well as positive vibes from the upcoming general election in Thailand – both of which should in turn benefit domestic alcohol consumption in the longer run.
In a Friday report, analyst Juliana Cai notes that ThaiBev’s share price in the year to date (YTD) has underperformed due to weaker-than-expected alcohol consumption in Thailand, which the group’s management alluded to poor rural income.
The analyst nonetheless believes ThaiBev faces limited downside from hereon, as she expects improving farm income and positive election sentiments to boost domestic alcohol consumption going forward.
“We expect alcohol consumption to bottom out soon, as Thailand GDP growth remains robust. Although some agricultural subsectors like rubber, fruits, livestock and fishery are still seeing low prices, overall farm income has been improving in recent months. The upcoming election could also boost overall consumer sentiment… Given that most political parties recognised the wealth gap in Thailand, we believe whichever party elected would likely focus on raising the disposable income of the upcountry region” explains the analyst.
While rubber is one of the major crops dragging down on the farm price index, Cai thinks m-o-m prices should not deteriorate significantly anytime soon as Thailand’s government has implemented mechanisms to support rubber prices.
“The government has also set minimum price mechanism for shrimps farmers, link pineapple producers to modern trades and export chickens to China to help the other affected sub-sectors,” she adds.
As at 11am, shares in ThaiBev are trading 1 cent higher at 68 cents or 3.08 times Sept-18F book value.
