Thai Beverage upgraded to Add by CGS-CIMB despite earnings miss

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CGS-CIMB upgraded Thai Beverage to Add from Hold, despite its first-half earnings missing forecasts and as the brokerage cut its profit outlook.

Fiscal first-half core net profit of 11.6 billion baht came in at 42.1 percent of CGS-CIMB’s full-year forecast, the brokerage said, with a lower interim dividend per share of 0.15 baht announced.

“Whilst we are hopeful of an uptick in sales due to World Cup festivities, we believe the sluggish and competitive market conditions could recur in [the fiscal fourth quarter] and spill over into 2019F, leading to lower domestic sales and lower blended gross profit margins,” CGS-CIMB said in a note on Thursday.

That spurred it to cut its fiscal 2018-20 net profit forecasts by 2.5-6.2 percent, saying “we opt to be conservative on domestic beer
sales and overall net margins given the sluggish underlying demand.”

However, it pointed to a nearly 14 percent drop in the stock price since the start of the year.

It noted that the last time the stock traded at its current valuations of 16.5-17.5 times 2018-19 price-to-earnings was end-2015, when net profit was lower at 4.2 billion baht to 5.9 billion baht, compared with the fiscal second quarter’s 6.3 billion baht core net profit.

“We believe the downside risks are priced in; hence, we upgrade our call to an Add,” it said, keeping a S$0.98 target price.

The stock ended Thursday at S$0.795.