KGI started Thai Beverage at Buy with S$0.75 target price, pointing to a potential rebound in alcohol consumption in Thailand and market share expansion in Thailand and Vietnam.
That followed ThaiBev reporting in August that its fiscal third quarter net profit fell 56.5 percent on-year to 8.646 billion Thai baht amid a lower contribution from the spirits business and a wider net loss from the non-alcoholic beverage business.
“Since 2016, beer consumption in Thailand has been affected by the mourning period and excise tax but we expect beer consumption to rebound soon due to improvements in wage growth and the steep rise in the Thailand’s consumer confidence index to a three-year high in
July,” KGI said in a note on Friday.
The brokerage added that it expected market expansion in Thailand and strong growth in the Vietnam beer market.
“ThaiBev is well positioned given that its key markets are ranked among the top alcohol consuming countries in Asia,” KGI said, pointing to World Bank data showing Thailand and Vietnam rank among the top alcohol consumers in Asia, with average alcohol consumption at 8.3 liters per capita, compared with the world average of 6.4 liters per capita.
It noted that the acquisition of Sabecco means ThaiBev now has around 40 percent of the beer market in Thailand and Vietnam, and 26 percent of Southeast Asia’s beer market.
ThaiBev’s ‘shrewd acquisitions’
“In our view, the merger will create economies of scale between the two companies, which will lead to stronger revenue growth, margins expansion and an increase in its market share in both Thailand and Vietnam,” KGI said. It estimated a compound annual growth rate (CAGR) of 20.5 percent in beer revenue over the next three years.
The brokerage also said ThaiBev was making “shrewd acquisitions” to drive growth.
“We believe that the purchase the Grand Royal distilleries in Myanmar would help the growth of the spirits segment in the long run while the firm’s KFC franchise will help to reduce revenue volatility in its food business given the resilience and track record of the KFC franchise,” KGI said.
It noted KFC is “highly popular” with Thai consumers and it estimated the food segment’s contribution to increase to 6 percent from 3.5 percent after the acquisition of 252 KFC franchise stores in Thailand, it said.
KGI forecast Thai Beverage’s earnings would decline 20.5 percent in fiscal 2018, before growing 26.1 percent in fiscal 2019 and increasing 8.3 percent in fiscal 2020.
Shares of Thai Beverage ended Friday up 2.42 percent at S$0.635.