ThaiBev poised for a turnaround, but can its shares continue to climb?

Uma Devi

SINGAPORE (Aug 21): Things seem to be looking up for Thai Beverage.

The group in 3Q19 reported a 22% increase in earnings to THB6.7 billion ($302 million), from THB5.4 million in the same quarter last year, on the back of stronger sales volumes and better margins across the majority of its business segments.

Total revenue for the quarter rose 3% THB62.7 billion, from THB60.7 billion a year ago, supported by an increase in sales of its spirits, non-alcoholic beverages and food business segments.

See: ThaiBev reports 22% rise in 3Q earnings to $302 mil on higher sale volume of spirits and soft drinks

In addition, ThaiBev’s associates played their part, delivering better than expected contributions for 3Q19. Gains from Fraser Property came in at about THB1 billion, or an increase of about 39% y-o-y.

Meanwhile, shares in ThaiBev have climbed close to 56.8% so far this year – outpacing the benchmark Straits Times Index. The counter closed at 92.5 cents on Wednesday, up from 59 cents on Jan 3.

Market watchers are positive that ThaiBev seems poised for a turnaround, especially since its domestic business has stabilised.

Any stimulus plans by the Thai government, they add, will provide a boost to the lower-income population, which could secure a stable growth for domestic alcohol volumes from 4Q19 onwards.  

In addition, analysts note that the company seems to have another area of untapped potential under its belt: Sabeco is set to deploy more initiatives to improve market share and operating efficiency, after recently unveiling a new product packaging.

But with the stock having already run up impressively this year, does ThaiBev have to legs to climb further?

RHB Group Research has cut its forecast for ThaiBev from a “buy” to “take profit” call, following its recent run up, with an unchanged target price of 92 cents.

“ThaiBev’s share price has performed well year-to-date. We deem it difficult to continue rallying next year, given some headwinds in its biggest segment – spirits. Investors can look to accumulate at below 83 cents, which implies 19x FY20F P/E, in line with the 5-year historical average,” says analyst Juliana Cai.

Cai also notes that underlying demand for brown spirits grew by only 3% this quarter, and expects volumes and margins to normalise in the upcoming quarter, with higher raw material costs expected.

However, DBS Group Research is maintaining its “buy” call on ThaiBev with an unchanged target price of 91 cents, noting that 3Q19 is tracking ahead on margins and associates’ contributions.

“Spirits’ earnings [are] back on a growth path, allaying concerns of weak consumption,” says lead analyst Andy Sim in a flash note on Aug 15. “[We] reiterate our view that ThaiBev’s earnings will be driven by domestic recovery and improvements from Sabeco.”

Looking ahead, Sim notes that 4Q tends to be a seasonally slower quarter for ThaiBev.

“That said, we maintain our positive stance on the counter, premising on earnings growth of 12%/13% for FY19F/FY20F driven by volume recovery and domestic consumption; improvements in operations of Sabeco; and optimism of gradual deleveraging on back of strong and stable cashflows,” he adds.

Similarly, CGS-CIMB Research is maintaining its “add” call with a 4 cents higher target price of $1.00, in line with an uptrend in domestic alcohol volumes and higher associate contributions.

“We like that ThaiBev’s domestic business has stabilised and view Sabeco improvements as the next medium-term earnings growth driver,” says analyst Cezzane See, remaining confident that Sabeco’s earnings will surpass its guidance by year-end.

See also says Sabeco could well exceed its CY19 earnings growth target, which was maintained at 7%. She notes that Sabeco saw a 15% y-o-y growth in the first half of CY19.

According to DBS valuations, shares in ThaiBev are trading at an estimated price-to-earnings (PE) ratio of 22.0 times and a dividend yield of 3.0% for FY19F.