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ThaiBev could fizzle out amid coronavirus outbreak, stiffer drunk driving penalties, but analysts unfazed

Jeffrey Tan
Jeffrey Tan • 3 min read
ThaiBev could fizzle out amid coronavirus outbreak, stiffer drunk driving penalties, but analysts unfazed
Analysts are upgrading ThaiBev to "buy" despite the headwinds.
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SINGAPORE (Feb 17): Following a positive set of results in 1QFY20 ended Dec 31, the outbreak of the novel coronavirus (Covid-19) could very well take the fizz out of Thai Beverage’s (ThaiBev) performance ahead.

This is on top of stiffer penalties imposed on drivers under the influence of alcohol in Vietnam recently.

However, that is not stopping analysts from upgrading their respective recommendations for the stock.

Phillip Securities has shifted to a “buy” call for the stock with a higher target price of 95 cents from 80 cents previously.

RHB Securities has upgraded to a “buy” rating for the stock from “neutral” previously, albeit with a lower target price of 92 cents from 95 cents previously.

Meanwhile, CGS-CIMB Research has maintained its “add” recommendation, but lowered its target price for the stock to 90 cents from $1.02 previously.

According to Phillip Securities, Thai farm income has been resilient especially with the support from the government.

This is despite its initial concerns over consumer spending in Thailand, especially farm incomes.

Not only that, ThaiBev’s spirit volumes have been “healthy” as customers are purchasing the more premium and higher margin brown spirits, it adds.

“We are more positive on the outlook,” Phillips Securities’ head of research Paul Chew writes in a note dated Feb 17.

CGS-CIMB points out that ThaiBev’s 2QFY20’s domestic demand should stay resilient.

Its notes the company is confident that the Thai government spending will continue at least until March and April this year.

Moreover, the brokerage notes that the company does not believe agents are sitting on excessive inventory levels.

“We still like [ThaiBev] for its longer-term prospects,” CGS-CIMB analyst Cezzane See writes in Feb 15 report.

Still, the outbreak of Covid-19 will dampen sales of ThaiBev’s Chang beer as it is most exposed to on-trade consumption, warns Phillip Securities.

This will be compounded by volumes lost from fewer tourist arrivals, it adds.

If the Thai government spending does not continue, CGS-CIMB reckons the company could face repercussions from the Covid-19 epidemic in 2HFY20.

In Vietnam, RHB Securities notes that fines have doubled and could result in the suspension of driving licenses.

“The tough stance on drunk driving has led to a significant drop in alcohol sales volume since the start of this year,” RHB Securities analyst Juliana Cai writes in a note dated Feb 17.

Furthermore, appetite for a potential IPO of ThaiBev’s brewery business could wane, which may lead to potential delays, warns CBS-CIMB.

Given these headwinds, analysts have cut their respective earnings forecasts for ThaiBev.

RHB Securities trimmed its FY20, FY21 and FY22 earnings estimates by about 2% as some of the on-trade alcohol and food consumption could be affected by the Covid-19 outbreak.

CGS-CIMB also slashed its FY20, FY21 and FY22 revenue estimates by 4%, 2.9% and 2.6%, respectively, and earnings estimates by 5.7%, 5.1% and 4.7%.

However, Phillip Securities has raised its FY20 earnings estimate by 6%.

As at 12.36 pm, ThaiBev was up 5 cents or 6.4% at 83.5 cents, with some 24.4 million shares changed hands.

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