RHB: Thai Beverage ‘cannot be more sober,’ leaving limited downside from here

Thai baht notesThai baht notes

Thai Beverage shares have underperformed so far this year amid weaker-than-expected alcohol consumption in Thailand, but further downside is limited, RHB said, adding it “cannot be more sober.”

Most of the downside risks have been priced in already, RHB said in a note on Friday, including an “unfavorable” deal structure for the Sabeco acquisition.

The Thai Beverage share price decline after its earnings results was mainly on the weaker-than-expected Thai alcohol demand, RHB said, noting management attributed the demand issue to poor rural income.

“We expect alcohol consumption to bottom out soon, as Thailand GDP growth remains robust,” RHB said. “Although some agricultural subsectors like rubber, fruits, livestock and fishery are still seeing low prices, overall farm income [has been] improving in recent months. The upcoming election could also boost overall consumer sentiment.”

RHB said it expected improvements in farm income to benefit domestic alcohol consumption.

It added that pre-election campaigns, with the general election currently set for 24 February 2019, may boost sentiment and domestic consumption.

“Given that most political parties recognized the wealth gap in Thailand, we believe whichever party elected would likely focus on raising the disposable income of the upcountry region,” RHB said.

The Sabeco deal concerns also appear priced in, it said.

“We believe high net gearing and balance sheet risks posed by the unfavorable deal structure of the Sabeco acquisition have largely been priced in since the first quarter of 2018,” RHB said.

While it still expected fourth quarter alcohol volumes to remain on a decline due to a high base effect in the year-earlier quarter as trade agents stocked up before an excise tax hike, improving rural income and “positive vibes” from the election should boost demand in 2019, RHB said.

That would offer more upside potential than downside risks for the stock, it said.

It kept Thai Beverage shares at Buy with S$0.88 target price.

ThaiBev shares ended Friday up 1.49 percent at S$0.68.

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