DBS: Thai Beverage’s recovery is on track

Thai baht notesThai baht notes

DBS said it was sticking with its Buy call on Thai Beverage despite its shares’ strong rally and despite a drop in second quarter net profit.

While the headline fiscal second-quarter earnings appeared weak, the first half figures were “well within” expectations at 56 percent of the full-year forecast, DBS said in a note Monday.

Thai Beverage reported Friday its fiscal second quarter net profit fell 8.6 percent to 6.76 billion Thai baht (S$291.97 million or US$214.33 million) on lower net profit from the spirits, food and F&N/FPL businesses.

That was partly offset by an increase in net profit from the beer business and a narrower loss form the non-alcoholic beverages business, Thai Beverage said.

The bank said it expected the spirit segment’s performance slip was likely temporary, due to the effects of the price increase following the implementation of the Elderly Fund Tax.

DBS said it was still forecasting 2019 and 2020 earnings growth of 12 percent and 13 percent respectively on volume recovery and domestic consumption. The bank added its 2019 earnings forecast was around 4 percent below consensus.

It also said it expected improvements in Sabeco’s operations and gradual deleveraging amid strong and stable cashflow.

“The market could be skeptical of its high gearing after a series of acquisitions,” DBS said. “Based on our estimates, we believe management
has termed out its borrowings and will be able to repay/refinance its obligations with its strong cashflow.”

DBS raised its target price for Thai Beverage shares to S$0.91 from S$0.81.

The stock ended Tuesday down 1.31 percent at S$0.76; it had climbed from as low as S$0.58 last last year to as high as S$0.86 in April.


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