SINGAPORE (Jan 23): Nomura Research is starting coverage on Thai Beverage (ThaiBev) with a “buy” recommendation and a target price of $1.13, representing a potential upside of more than 20% from its current price.
According to Nomura lead analyst Thanatcha Jurukul, ThaiBev’s earnings are expected to recover to 12% year-on-year in FY18, from -2% in the FY17 ended September. Over the next three years, earnings are forecast to grow at a compound annual growth rate (CAGR) of 9%.
“We expect to see recovery in beer sales after the end of the one-year national mourning period in Thailand,” says Jurukul.
At the same time, the FIFA World Cup competition in June-July is also expected to drive improving beer sales.
“We note that major football events can boost beer consumptions as Thai football fans have a culture of drinking beer while watching the football matches. The major football events like FIFA World Cup and UEFA European Championship (EURO) have track record of driving the industry’s and THBEV’s beer sales,” the analyst adds.
In addition, Jurukul notes that many Thai could soon be completing their loan repayments from Thailand’s first-car scheme, a populist policy that commenced in late 2011 which offered tax rebate to each buyer of a car priced less than 1.5 million baht.
The scheme resulted in a spike in car sales in 2012-2013, with car loan terms in Thailand normally for 4-5 years.
“An immediate increase in the monthly financial burden from car loans pressured consumer spending,” says Jurukul. Conversely, the completion of loan repayments should see the return of consumer spending and boost beer consumption.
Further, Jurukul says ThaiBev’s recent acquisitions – Grand Royal Whisky, Saigon Beer-Alcohol-Beverage Corp (Sabeco), and the KFC franchise – are “good moves to support sustainable growth amid the mature spirits business” from a long-term perspective.
“We analyse ThaiBev’s recent M&As and believe that they are good investments, despite the high acquisition prices,” says Jurukul. “We also note a good track record of synergies among ThaiBev’s existing businesses.”
See: ThaiBev’s F&B buying spree could make it a dominant regional player
Among the beverages categories, Jurukul believes that there is a better growth outlook for beer, on the back of successful marketing initiatives by major breweries as well as a more urbanised lifestyle.
On the other hand, he sees a sluggish market growth trend for products such as spirits, juice, energy drinks, and ready-to-drink (RTD) tea.
While ThaiBev’s non-alcohol beverage business remains loss-making, Jurukul notes that it is on an improving trend.
As at 3.01pm, shares of ThaiBev are trading 1 cent higher at 93 cents, implying an estimated price-to-earnings ratio of 19.7 times and a dividend yield of 2.7% for FY18.
