UOB Kay Hian analyst Llelleythan Tan has maintained his “buy” call for Thai Beverage (ThaiBev) with a lowered target price (TP) of 89 cents from 94 cents previously.
While Tan sees ThaiBev as an “attractive and undervalued” stock with “high potential upside”, the lower TP is due to the lower valuation for the spirits segment as he lowered his spirits ebitda forecasts.
However, he still believes that ThaiBev remains attractively priced at -1 standard deviation (s.d.) of its five-year mean P/E, backed by an expected earnings recovery and underpinned by “favourable tailwinds that are already underway”.
According to Tan, ThaiBev had a “robust” 3QFY2022, with revenue and ebitda growing 6.8% y-o-y and 4.8% y-o-y respectively for the quarter, putting the company’s 9MFY2022 revenue in line with expectations and ebitda slightly above expectations.
The robust quarterly performance was thanks to the beer segment’s outperformance and backed by two average selling price (ASP) hikes in 1HFY2022 and the relaxation of Covid-19 measures in Thailand and Vietnam.
For the 9MFY2022 ended June, ThaiBev reported revenue and ebitda of 207.9 billion baht, an 8.2% y-o-y increase, and 39.1 billion baht, a 6.7% y-o-y increase.
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This was driven by a stronger-than-expected recovery in the beer segment, although the spirits segment underperformed despite lower molasses costs, dragged down by rising packaging costs.
That said, the analyst has lowered his patmi forecasts for the FY2022 to FY2024 by 3% to 4% after accounting for the lower spirits volumes and higher beer volumes. His new FY2022 to FY2024 patmi estimates are 29.3 billion baht ($1.1 billion) from 30.47 billion baht previously, 31.53 billion baht from 32.71 billion previously and 34.0 billion from 35.24 billion baht previously respectively.
The UOB Kay Hian analyst says that based on his estimates, ThaiBev is “on track” to post strong annual y-o-y growths for FY2022 revenue and ebitda at 12.0% and 13.3% y-o-y respectively.
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Meanwhile, OCBC Investment Research analyst Chu Peng has maintained her “buy” rating for ThaiBev with an unchanged TP of 88 cents, citing “undemanding” valuations considering the economic reopening and ThaiBev’s “strong brand name and product portfolio”, its strong market share in Thailand and Vietnam and effective cost control. She notes that ThaiBev is currently trading at a blended forward price-to-earnings (P/E) of 14.2x, which is more than 1 s.d. below its historical average of 16.7x.
OCBC’s Chu adds that the spirits business was impacted by higher packaging costs and currency depreciation of Myanmar kyat. She notes that despite the fall in revenue and ebitda, ThaiBev’s ebitda margin was only down “marginally” by 0.9 % points y-o-y to 24.6%, underpinned by “prudent cost management”.
According to UOB Kay Hian’s Tan, an additional stock impact has been the postponement of ThaiBev’s spinoff BeerCo listing again. “ThaiBev announced that the group has decided to defer the initial public offering (IPO) of its beer business due to prolonged challenging market conditions, just three months after reviving plans for the listing. It was also noted that the group would continue to monitor market conditions and review the proposed listing again in the future,” he says.
“Given the uncertain global macroeconomic conditions, we reckon that the IPO was shelved due to liquidity concerns and expect ThaiBev to revive the IPO plans once market conditions improve,” Tan adds.
For Chu, potential catalysts for ThaiBev include a rebound in domestic alcohol consumption and growth in associates and joint ventures’ (JV) earnings, while investment risks remain a slowdown in domestic alcohol consumption and weaker economic growth.
As at 11.38am, shares in ThaiBev were trading 1 cent or 1.55% down at 63.5 cents.
