Singapore: ThaiBev kept at ‘buy’ ahead of anticipated recovery in consumption

OCBC Investment Research is keeping its “buy” call on Thai Beverage ahead of an anticipated recovery in consumption for the rest of FY18, The Edge Singapore reported on March 5.

This comes despite ThaiBev’s 1Q18 results coming in below expectations, and an elevated gearing ratio following the group’s recent acquisition spree.

ThaiBev saw its earnings fall 62% to THB2.91 billion ($122 million) in the 1Q ended December, mainly due to one-off expenses of THB2.35 billion related to acquisitions in this quarter and finance costs linked to the Sabeco acquisition.

Total revenue dipped 3% to THB45.97 billion, with a slower-than-expected market recovery after the mourning period, as well as an increase in packaging costs, advertising and promotion expenses, and personnel expenses.

“While demand for spirits and beer were soft in 1Q18, we expect recovery in consumption for the rest of FY18,” says lead analyst Eugene Chua in a report on March 5.

According to Chua, the recovery will be on the back of the recent extension in the Songkran holiday to five days, as well as the FIFA World Cup 2018 tournament, which is expected to lift alcohol consumption with compatible match timings for viewers in Asia.

“Over the longer-term, we deem ThaiBev’s acquisition of the largest beer player in fast-growing Vietnam market to be positive and important, as part of its plans under its Vision 2020 to diversify away from business concentration in Thailand,” says Chua.

However, the brokerage is lowering its fair value estimate to 95 cents, from $1.07 previously.

“Taking into account the KFC acquisition in Thailand and Grand Royal acquisition in Myanmar, we estimate net gearing as at end-FY18 to spike up to approximately 1.4x from approximately 0.2x as at end-FY17,” Chua adds.

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