Yahoo Finance PhillipCapital upgrades call on ThaiBev to 'buy' as tipple thirst returns
PhillipCapital maintained its TP of 80 cents while CGS-CIMB lowered its TP to 88 cents from 91 cents previously.
PhillipCapital Research analyst Paul Chew has upgraded his call on Thai Beverage PLC (ThaiBev) to “buy” with an unchanged target price (TP) of 80 cents while CGS-CIMB’s Ong Khang Chuen kept his “add” call but lowered his TP to 88 cents from 91 cents previously. OCBC Investment Research analyst Chu Peng maintained her "buy" call and TP of 66 cents.
Chew’s upgraded call for ThaiBev comes off the back of “in line” results, with the company’s 9MFY2022 revenue and Ebitda coming in at 77% and 76% of his FY2022 forecasts respectively, but his TP remains unchanged due to “recent share price weakness”. Chew’s TP is pegged at 18x FY2022 earnings, ThaiBev’s five-year average, with no change to his FY2022 forecast.
“The re-opening of entertainment venues in Thailand on June 1 and softer commodity prices should support earnings in 4QFY2022. Separately, the company announced the deferment of the BeerCo spin-off due to challenging market conditions,” writes Chew.
He adds that beer sales rebounded strongly with a 16% year-on-year (y-o-y) growth, with volume recovery from lockdowns in 2021, such as in Vietnam. “Price increases, product mix and lower sales and marketing costs supported the expansion in Ebitda margins to a record 16.1%,” he says, noting that pre-pandemic Ebitda margins were around 10%.
In addition to its recommendation and TP, OCBC's Chu says she also sees the recovery of ThaiBev's spirits business to recover on the back of the June 1 reopening in Thailand. ""ThaiBev is currently trading at a blended forward price-to-earnings (P/E) of 14.2x which is more than 1 standard deviation (s.d.) below its
historical average of 16.7x. We think valuations are undemanding given the reopening of the economy, together with ThaiBev’s strong brand name and product portfolio, its strong market share in Thailand and Vietnam, and effective cost controls," she writes.
Meanwhile, CGS-CIMB’s Ong believes that this strong recovery in beer volumes led to ThaiBev’s “outperformance” for the quarter, with its 3QFY2022 revenue and Ebitda rising 6.8% and 9.7% y-o-y respectively. He deems these results ahead of expectations, with ThaiBev’s 9MFY2022 Ebitda coming in at 80% of his FY2022 forecast.
“Results were led by stronger performance of beer and food segments (benefiting from earlier phases of economic reopening), while spirits segment underperformed in 3QFY2022. Ebitda margins were also well managed, expanding 0.5% points y-o-y to 19.0% in 3QFY2022,” writes Ong.
Aside from volume recovery, Ong notes that in Vietnam, SABECO’s management shared that with its latest product repackaging and advertising campaigns, brand health has improved significantly, which he believes should “bode well” for further market share gains and volume growth.
To him, ThaiBev’s deferment of the spin-off of its BeerCo subsidiary considering the “prolonged challenging market conditions” will not be an issue for the company. “We view this as a non-event, as newsflows have emerged since July that the spin-off is likely to be pushed back, subject to an improvement in market conditions,” he writes.
“While the original intention for the spin-off was to help ThaiBev with further deleveraging, we deem ThaiBev’s current net gearing of 0.7x as healthy. With strong free cash flow generation, we forecast ThaiBev’s net gearing to reach 0.4x by end-FY2024,” adds Ong.
In view of this, Ong has raised his FY2022 FY2024 earnings per share (EPS) by 5.0% to 6.5% to reflect stronger beer volumes and margin assumptions. His TP is lowered slightly to 88 cents due to the depreciation of the Thai baht, but ThaiBev remains the sector “top pick”, as he believes it is a “laggard recovery play”, trading at an undemanding valuation of 13.9x FY2023 P/E, 1.3 s.d. below its 10-year historical mean and below regional peers’ 24.4x.
However, PhillipCapital’s Chew notes that spirits are down after displaying strength a year ago, with volumes dropping 14% y-o-y to 138 million litres, slightly above 3QFY2021’s 136 million litres which included a one-month alcohol ban in Thailand. “We believe the weak volumes stem from poor sales and currency in Myanmar and lower consumption of on premises brown spirits,” he says.
Chew expects the overall recovery from lockdowns and weaker economic conditions to continue, while price increases implemented over the past few quarters together with the rolling over of commodity prices should support a gross margin recovery. He warns that operating margins may suffer if the company resumes marketing activities that were significantly cut over the past two years.
For CGS-CIMB’s Ong, potential re-rating catalysts include stronger volume recovery while downside risks include higher-than-expected input costs pressuring margins, while OCBC's Chu includes growth in associates and joint ventures’ earnings as one of her potential catalysts.
As at 1.52pm, shares in ThaiBev were trading flat at 66 cents.
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