SINGAPORE (Feb 15): DBS Group Research says the worst should be over for Thai Beverage and that its strong 1Q19 results should provide confidence and a re-rating catalyst for the counter.

Further re-rating catalysts could come from improved contribution from Sabeco, gradual deleveraging of the group, as well as regionalisation efforts to be the leading beverage player in Asean.

“We maintain our ‘buy’ recommendation with an unchanged target price of $0.87,” says DBS lead analyst Andy Sim in a Friday report.

ThaiBev posted a strong headline growth of 151% y-o-y to THB7.4 billion ($321.6 million), on the back of 60% rise in revenue. The robust earnings growth was driven by improvement in domestic consumer purchasing power; low-base effect compared to 1Q18 on the back of destocking by agents; absence of one-off acquisition transaction fee of THB2.45 billion the same period a year ago and strong associates' contribution.

See: ThaiBev 1Q earnings more than double to $321 mil on revenue jump
“Excluding the one-off items seen in 1Q18, core net profit still rose by a strong 37%. 1Q19 is tracking ahead of our forecasts and accounts for 32% of our FY19F net profit estimates,” says Sim.

In the medium term, catalyst would come from operational improvement and increased contribution from Sabeco, as well as the deleveraging of the group. While share price has increased by 25% since the recent low seen in December 2018, upside catalyst could come from EPS upgrades on better-than-expected operational performance.

Group revenue was THB72.6 billion, an increase of 59.7% y-o-y, helped by improved contribution from all its segments – arising from spirits’ sales (+28.6% y-o-y), increased contribution in beer (+128.6%) due to acquisition and consolidation of Saigon Beer (Sabeco), food business (+63.9%) and Non-Alcoholic Beverages (1.1%).

More importantly, management’s commentary on its results announcement indicated that the Thai domestic beverage market has showed signs of recovery. This was on the back of private consumption pick-up partly due to farmers’ income levels and government’s welfare card policy.

“This helps vindicate our view that the weak operational performance in FY18 was temporary and behind us,” says Sim.

Shares in ThaiBev closed 9 cents higher at 81.5 cents or 17.7 times FY20F earnings.