SINGAPORE (Feb 15): CIMB is maintaining its "hold" on Thai Beverage on higher selling expenses, uncertainties linking to the Saigon Beer-Alcohol-Beverage Joint Stock Corp (Sabeco) acquisition and elevated balance sheet risks which could continue to cap investor sentiment on the stock.
In a CIMB report, analyst Cezzane See had expected a softer 1Q18 on the back of de-stocking exercises by sales agents. Core net profit of THB5.3 billion ($222 million) was slightly below expectations due to higher-than-expected selling expenses of THB4.9 billion. Core net profit excludes one-off Sabeco costs amounting to THB2.4 billion.
In 1Q18, volume of spirit and beer sold at 352 million litres were down 8% q-o-q from 383 million litres in 4Q17 due to the de-stocking exercises; but were also 3.6% lower y-o-y, largely due to beer volumes falling 5.9% due to sluggish demand post the mourning period.
See: ThaiBev reports 62% fall in 1Q earnings to $122 mil on one-off acquisition expenses
"Management guides that demand for spirits and beer is still soft, which suggests that volume growth could be flat in 2Q18," says See.
ThaiBev guided that Sabeco's profitability and cashflow will only be incorporated from 2QFY9/18 onwards as the deal was completed close to the end of Dec 17. This is despite assets and liabilities already being included in its balance sheet.
"We understand that Sabeco's earnings are likely to be consolidated; however the effective economic stake is still being evaluated by its auditors. We previously assumed that ThaiBev has an effective 26.3% stake in Sabeco," adds See.
ThaiBev guided that the repayment of loans extended to Vietnam Beverage could match the two-year bridging loan it had obtained to fund the Sabeco deal. This is a surprise to us given that it previously guided that such loans would be repayable within 12 months.
To recap, ThaiBev is bearing 100% of the deal’s acquisition costs of THB156 billion; despite having an estimated 26.3% stake in Sabeco. This elevates ThaiBev’s balance sheet risk, keeping net gearing levels above 1x in FY18-20.
CIMB is lowering SOP-based target price of $0.98 from $1.00 as it revalues ThaiBev’s stake in Sabeco after a 37% decline in its share price to VND234,000 ($13.67) from VND320,000.
Shares in ThaiBev are trading 6 cents lower at 85 cents or 18.4 times FY19 earnings.
