DBS Group Research is keeping its “buy” call on Thai Beverage (ThaiBev) with a target price of 90 cents.
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In an Oct 20 report, lead analyst Andy Sim likes the stock for three reasons.
Firstly, it is the region’s leading beverage player with an attractive valuation of 1.3 times FY2021 P/E and -1SD of its 10-year historical average.
“We believe the market has not attributed the resiliency of the group’s operations, based on its valuations which are among the lowest for global and regional beverage players. As seen in its latest 3QFY2020 and YTD operational performance, we believe the stock does not warrant trading below -1SD of its 10-year historical average,” says Sim.
Secondly, ThaiBev has shown to be Covid-19 resilient as stable Thai domestic spirits consumption has provided the group with recurring cashflow. Meanwhile, Sim believes that ThaiBev will see stronger earnings growth from improved contributions from Sabeco, potential market share gains in Thai beer market and faster turnaround from Non-Alcoholic Beverages (NAB).
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“Tracking monthly data for spirits and beer in Thailand, we adopt the stance that the worst is possibly behind us with lockdowns and alcohol sales ban back during April/May in Thailand,” says Sim.
ThaiBev is set to announce its FY2020 results ended September sometimes in late-November, to which the analyst has predicted ThaiBev to post net profit of 21.7 billion baht in FY2020, 6.8% lower y-o-y from FY2019.
“This is despite a challenging year brought about by Covid-19, and demonstrates the resiliency of the group’s operations. We believe this is a catalyst for share price to rerate from the current low valuations. Even if net profit should come in below our forecasts, we expect this should arise from weaker contribution from its property associates, rather than core operations,” adds Sim.
And thirdly, Sim says that continued deleveraging from its strong and stable cashflow, as well as potential monetisation of assets are key re-rating catalysts for ThaiBev. Signals that shows no significant take up of leverage for huge acquisition activities may also remove share price overhang.
As at 3.45pm, shares in ThaiBev are trading at 58 cents or 15.4 times FY2020 earnings and a dividend yield of 3.2%.
