SINGAPORE (Feb 22): Phillip Capital believes Thai Beverage (ThaiBev) will overcome near term pressures as its newly-acquired businesses fuel growth in its three core pillars – Spirits, Beer and Food – over the longer term.
The brokerage is keeping its “buy” recommendation on ThaiBev, even as the group saw its earnings tumble 62% to THB2.91 billion ($122 million) in 1Q18, from THB7.71 billion a year ago.
The decline was largely attributable to one-off expenses of THB2.35 billion related to acquisitions during the quarter, and finance costs linked to the Sabeco acquisition.
Total revenue dipped 3% to THB45.97 billion in 1Q18, from THB46.99 billion a year ago.
See: ThaiBev reports 62% fall in 1Q earnings to $122 mil on one-off acquisition expenses
“We maintained our view that on-trade consumption should turnaround in FY18 after the effect of mourning period and excise tax hike in Thailand subside,” says analyst Soh Lin Sin in a Thursday report. “A broader economic recovery in Thailand would help to support consumer sentiment and purchasing power; while the FIFA World Cup is likely to boost beer sales.”
In addition, Soh notes that Sabeco’s results of operations and cash flows will be consolidated at group’s level starting from 2Q18 onwards.
“Strong brand equity and market positioning of the acquired businesses could potentially lift the Group’s margins. Grand Royal and Sabeco have significant, if not dominant, share in [their] respective markets,” Soh adds.
The way Soh sees it, the acquisitions allow ThaiBev to tap into high-growth Southeast Asian markets, in line with its Vision 2020 aim to become the largest beverage company in the region.
ThaiBev’s partnership with Yum Thailand, Grand Royal Group, and Sabeco could also unlock value from potential synergies.
“The group could leverage on the pervasive network of these three groups to distribute its core products,” Soh says.
After taking into consideration the potential earnings from its new revenue streams from its newly acquired businesses; the finance costs from the loans to fund its acquisition spree; and the non-recurring acquisition costs, Phillip is raising its FY18 revenue, core EBITDA, and adjusted PATMI forecasts for ThaiBev by 17.9%, 4.1%, and 2.6%, respectively.
The brokerage has a target price $1.05 for ThaiBev, lowered from $1.18 previously.
As at 12.01pm, shares of ThaiBev are trading half a cent lower at 83 cents, implying an estimated price-to-earnings ratio of 17 times and a dividend yield of 2.8% for FY18.
