CFA Society Singapore
SINGAPORE (Jan 18): RHB is reiterating its “buy” call on Thai Beverage (ThaiBev) with a higher target price of 85 cents, from 75 cents previously.
This came following the group’s loan restructuring with Vietnam Beverage, which means ThaiBev now owns 53% of Sabeco, the largest brewery in Vietnam.
In a Friday report, analyst Juliana Cai says, “We believe this move is positive to the group in the long run as Thaibev will have greater control of the business, allowing it to reduce Sabeco’s cost structure and increase efficiencies. This, however, slightly dampens near-term earnings, due to the absence of interest charged to Vietnam Bev after the loan restructuring.”
Last year, ThaiBev was one of the worst-performing stocks in Singapore, with earnings impacted by weak alcohol consumption in Thailand.
“We believe the worst is over for the outlook for alcohol demand in Thailand, as production growth has picked up since Oct 2018,” says Cai, who notes that this is a key indicator of alcohol demand and expects to see similar trends in consumption.
Throughout 2018, overall rural income was dragged down by the underperformance of sugar, palm oil and rubber prices. But these prices have since bottomed out and should help improve purchasing power of farmers this year.
“In addition, while the long-awaited general election might see further delays, we have seen the government dishing handouts ahead of the election, which could help to boost near-term spending power in Thailand,” says Cai.
As at 2.11pm, shares in ThaiBev are trading at 71 cents or 3.2 times FY19 book with a dividend yield of 2.6%.