SINGAPORE (Oct 4): UOB KayHian is upgrading Thai Beverage to “buy” on signs alcohol consumption may be gradually recovering after data showed a pick-up in consumer confidence levels to a five-year high.
Meanwhile, ThaiBev has restructured its management positions to include designated roles to improve acquired businesses and gain synergies.
“Upgrade to ‘buy’ with SOTP-based target price of $0.84,” says lead analyst Lucas Teng in a Thursday report.
According to the University of the Thai Chamber of Commerce (UTCC), the consumer confidence index climbed to 83.2, a five-year high in Aug 18, increasing from 80.1 in May on the back of rising exports, tourism and farm prices in produce such as fruits, corn and tapioca.
Consumption will likely spread wider in the country towards rural communities with rising agriculture exports, as well as the elections slated for Feb 19.
“Although we are cautious of the near-term impact, we expect consumption volume for alcohol products to recover in the mid-term,” says Teng.
In addition, ThaiBev announced organisational changes at end-September, adding two new senior positions to its management appointments.
Both positions were filled by internal personnel and changes are in line with ThaiBev’s commitment to increase value creation and business benefits to move towards Vision 2020.
Separately, ThaiBev president & CEO will also assume the role of chief - beer product group, in an effort to level up the group’s commitment to beer business opportunities.
“With organisational restructuring in place to take advantage of synergies and value creation across ThaiBev business units, the group can look forward to cost savings from newly integrated business units such as Sabeco and Myanmar Spirits,” says Teng.
Recently, ThaiBev also issued THB77 billion ($3.3 billion) in debentures, said to be Thailand’s largest corporate bond issue.
Overall, net gearing remains at 1.5x, with interest coverage at 4.9x. Coupon rates for its new debentures are manageable, at 3.35% vs Thailand savings bond rate at 2.15% for five years.
UOB is valuing ThaiBev’s spirits business at 16x EV/EBITDA, which is in line with global peers, and the beer business at 14x EV/EBITDA, a premium to the global peers’ average of 11.7x as we see strong uptrend in ThaiBev’s beer business.
“We note that ThaiBev (2019F PE of 15.1x) is still trading at a discount to global alcohol peers (FY19F PE 23.4x), suggesting potential upside in current valuation,” says Teng.
Year to date, shares in ThaiBev are down 24% to 70 cents.
