SINGAPORE (Nov 27): Brokerages are unanimously positive on Thai Beverage (ThaiBev) after the F&B group last week reported a surge in FY17 earnings on the back of fair value gains by Singapore-based Fraser & Neave (F&N), coming in line with general expectations.

See: ThaiBev reports 38.3% rise in full-year earnings to $1.4 bil, aided by fair value gains

The improvement in full year earnings has led Phillip Capital to upgrade its call on the stock to “buy” with a higher target price of $1.18 after rolling over valuations to FY18E, taking into consideration the potential earnings from the group’s new Spirits business in Myanmar, as well as the new loans to fund its acquisition spree.

See: Thai Beverage acquires Grand Royal distilleries in Myanmar for $1 bil

“We remain optimistic of a recovery in consumer sentiment in F&B. We are also positive that the group could further expand its margin via better pricing in FY18. Any acquisition navigating the group closer towards realising Vision 2020 could act as a catalyst for re-rating,” says Phillip Capital analyst Soh Lin Sin in a Monday report.

OCBC Investment Research and UOB Kay Hian maintain their “buy” calls on ThaiBev with a fair value estimate of $1.07 and target price of $1.11, respectively. Both are anticipating recoveries in alcohol sales volumes post the mourning period in Thailand.

In the view of OCBC’s lead analyst Eugene Chua, ThaiBev’s recent acquisition of its Myanmar-incorporated companies gives the group a “leading position in Myanmar as the biggest whiskey player”, and could offer potential synergies to be reaped from a stronger distribution network in the country.

“We deem this acquisition positive and important for ThaiBev as part of its plans under its Vision 2020 to diversify away from business concentration in Thailand,” says Chua.

Meanwhile, UOB analyst Thai Wei Ying has adjusted FY18 net profit forecasts down slightly by 2.3% to account for potential destocking in 1Q18 – which she says is not a big concern, as the high seasonality of quarter on the Christmas and New Year festivities should mitigate the impact.

Thai nevertheless sees a strong turnaround y-o-y in FY18 as alcohol consumption resumes post the mourning period, and values the beer business at 13 times EV/EBITDA, a premium to global peers on the view that ThaiBev’s beer business is on an uptrend.

On the other hand, the group’s non-alcoholic beverages (NAB) business is valued at 2 times EV/sales, a discount to peers given its loss-making position, while the valuations of the spirits and food businesses remain in line with global and local peers, respectively.

“Thaibev’s current P/E at 20.5 times is still lower than that of global spirits peers’ average of 30.6 times 2018F P/E, 22 times for beer companies, and 27 times for  NAB companies,” notes the analyst.

Likewise, CIMB Research is reiterating its “add” recommendation on the stock while raising its target price to $1.15 from $1.07 previously, after tweaking up FY18-19F earnings per share (EPS) estimates on expectations of better Thai consumer sentiment from CY18 onwards.

CIMB analyst Cezzane See similarly believes there could be more investor interest in the stock given overall better sentiment for the consumer segment.

This is in addition to the potential for further stock re-rating in the longer term on the Vision 2020 strategic plan – which may see the group embark on more international alcoholic beverage and non-beverage mergers and acquisitions (M&As) moving forward.  

“Our Thai research team believes that 2018 will be a year of celebration. The new King’s coronation ceremony is expected to be in 1H18, which should benefit the tourism, retail and consumer discretionary sectors. A recovery in consumer sentiment and spending should have a knock-on effect on ThaiBev’s business, in our view,” says See.

As at 11.17, shares in ThaiBev are trading 1 cent higher at 98 cents or 22.8 times ocbc FY18 forward earnings.