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PhillipCapital and UOB Kay Hian up ThaiBev’s TP on 'spirited performance'

Felicia Tan
Felicia Tan12/1/2020 04:18 PM GMT+08  • 4 min read
PhillipCapital and UOB Kay Hian up ThaiBev’s TP on 'spirited performance'
Both brokerages say ThaiBev's FY2020 earnings and revenue came within and above expectations.
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Analysts at PhillipCapital and UOB Kay Hian have viewed Thai Beverage’s 4QFY2020 results as positive.

On Nov 26, the regional food and beverage group reported a 2% decline in full-year earnings to 22.75 billion baht ($1 billion), and FY2020 revenue of 253.48 billion baht, down 5.2% y-o-y.

See: ThaiBev posts 2% dip in FY2020 earnings to $1 bil

For PhillipCapital analyst Paul Chew, the figures were within expectations at 99% and 101% of his forecasts for earnings and revenue respectively.

In his report dated Nov 30, Chew cited a recovery in spirit sales, increased beer margins and a raised final dividend as his reasons to maintain “buy” on the counter.

“ThaiBev managed to increase its earnings in FY2020, ex-one-offs, despite lockdowns, economic weakness and tighter regulations on alcohol consumption. To cope with these, it bludgeoned its marketing and distribution spending, which dropped 14% y-o-y or 4 billion baht,” he says.

“For FY2021e, we are expecting revenue growth from spirit volume growth of 3% and beer volume growth of 4%. We expect gross margins to improve, primarily from the spirits division. Plans to raise used bottles for white spirits from 30-40% to above 50% should help with packaging costs. These formed 6.7% of FY20 revenue,” he adds.

To this end, Chew has increased his target price to 86 cents from 82 cents based on 18x earnings. He has also upped his earnings per share (EPS) estimates for FY2021e by 4%.

“EBITDA margins in FY2021e could also be aided by a continued tight lid on sales and marketing expenses. We expect ThaiBev to keep costs at almost the same level as last year: 9.8% of FY2021e sales vs 9.7% in FY2020. If it increases spending at all, it would be to respond to aggressive promotions by competitors,” he predicts.

Meanwhile, Chew warns that Sabeco volumes remain weak due to the tight enforcement of the new drink-driving regulations in Vietnam, as well as the closure of restaurants and bars, and that it is expected to make a “soft recovery”.

“Any significant pick-up will depend on: i) the ability of its new Saigon Chill product to compete in the sub-premium category of beers; and ii) the enforcement of regulations on alcohol consumption,” he says, on Sabeco.

For UOB Kay Hian analyst Lucas Teng, ThaiBev’s figures stood above his expectations.

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To Teng, the group’s performance was “resilient” amid the Covid-19 pandemic as 4QFY2020 turnover increased by 2.1% y-o-y to 63.4 billion baht, reversing from the 15.4% y-o-y dip in 3QFY2020.

ThaiBev’s core markets in Thailand and Vietnam have also seen Covid-19 cases to be largely controlled in their general population.

Similar to Chew’s view, Teng thought the group benefitted from well-managed selling, general and administrative expense (SG&A) costs “which look set to continue in the near term, given lower levels of on-premise activities”.

“The group has been deleveraging its balance sheet using cash flows from its operations, with net gearing pared down to 1.01x as of FY2020. The group has available credit facilities of Bt40b to refinance its existing bonds due in Mar 2021, if required,” Teng says, on the group’s financials.

On this, Teng has maintained “buy” on ThaiBev with a higher target price of 85 cents from 78 cents previously.

He has also raised FY2021-2022 net profit forecasts by 6% and 3% respectively on lower SG&A expense in the near-term.

“We value: the spirits business at 17x EV/EBITDA, in line with global peers’; the beer business at 15x EV/EBITDA, in line with peers’ average; the NAB business at 2.5x EV/sales, a discount to peers’ 3.5x; and d) the food business at 14x EV/EBITDA, in line with local peers’. Frasers Property and Fraser & Neave, in which ThaiBev owns 28% each, are valued based on market value,” he says.

As at 4.17pm, shares in ThaiBev are trading 0.5 cent lower or 0.7% down at 73.5 cents.

See also: Analysts more bullish on ThaiBev despite weak FY20 results

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