SINGAPORE (May 15): DBS Group Research lead analyst Andy Sim is keeping his “buy” call on Thai Beverage (ThaiBev) with a target price of 90 cents from $1.04 previously.

In a Friday report, Sim says, “We continue to maintain our positive stance on ThaiBev and the resiliency of alcohol consumption in the countries it operates in despite headwinds posted by Covid-19. With lockdown measures easing, sales should gradually resume and revert to normalcy.”

Yesterday evening, ThaiBev announced its 2Q20 earnings, which fell some 14.5% y-o-y to 5.0 billion Baht ($221 million). Revenue also fell 12.3% y-o-y to 61.4 billion Baht, due to a decrease in sales of spirits business of 3.9%, beer business of 23.5%, and food business of 8.0%, although there was an increase in sales of non-alcoholic beverages business of 5.1%.

See: ThaiBev posts 14.5% drop in 2Q earnings to $221 mil

As at Dec 2019, ThaiBev’s net gearing stood at 1.17 times. This follows its acquisition spree period, which saw the acquisition of a 53.59% stake in Sabeco.

Despite the high gearing, Sim is not concerned. “The market has concerns on ThaiBev’s high gearing, but we believe this should not be an issue as management has termed out its borrowings and is able to repay/ refinance its obligations with its strong cashflow. We opine that deleveraging remains among management’s key priorities,” he adds.

Looking forward, Sim expects 3Q20 for ThaiBev to be sequentially weaker given a seasonally slower quarter, coupled with Covid-19 lockdown measures in place.

“That said, we are optimistic that operations are on the cusp of a recovery on the back of gradual lifting of restrictions,” says Sim.

As at 2.10pm, shares in ThaiBev are trading at 67 cents, or 17.3 times FY20 earnings, which is below its 10-year historical average of 18.4 times. The stock has a FY20 dividend yield of 2.9%.