Thai Beverage upgraded to Buy by UOB KayHian on brewing signs of recovery

Thai baht notesThai baht notes

UOB KayHian upgraded Thai Beverage to Buy amid signs a recovery is brewing amid a pickup in Thailand’s consumer confidence to a five-year high.

“We deem this a positive sign that alcohol consumption may be gradually recovering,” the brokerage said in a note on Thursday.

It noted that the University of the Thai Chamber of Commerce (UTCC) consumer confidence index climbed to 83.2 in August from 80.1 in May, boosted by rising exports, tourism and farm prices in produce including fruits, corn and tapioca.

“Consumption will likely spread wider in the country towards rural communities with rising agriculture exports, as well as the elections slated for February 2019,” the brokerage said.

It also noted Thai Beverage has restructured its management positions and added two new senior positions, filled by internal personnel, to improve acquired businesses and to gain synergies.

“The group can look forward to cost savings from newly integrated business units such as Sabeco and Myanmar Spirits,” it said. “We remain positive on the group’s ability to turn around underperforming business segments, as well as a renewed management focus into the beer business segment.”

But it trimmed its target price to S$0.84 from S$0.99. That was after lowering 2018-20 earnings forecasts by up to 9.6 percent on lower consumption volumes from the most recent results, albeit with a moderate recovery view, and on higher expected SG&A (selling, general and administrative) expenses and an interest increment.

UOB KayHian noted that the stock trades at 2019 price-to-earnings of 15.1 times, a discount to global alcohol peers’ at 23.4 times, adding that could signal potential upside in valuations.

Shares of ThaiBev were down 1.41 percent at S$0.70 at 9:06 A.M. SGT after ending up 5.97 percent on Wednesday.

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