UPDATE: Analyst Briefings: Thai Beverage fiscal 3Q earnings

Cans of Chang beer at a Singapore supermarket; taken September 2018. The Chang brand is owned, brewed and distributed by Thai Beverage.Cans of Chang beer at a Singapore supermarket; taken September 2018. The Chang brand is owned, brewed and distributed by Thai Beverage.

This article was originally published on Monday, 19 August 2019 at 7:00 A.M. SGT; it has since been updated to add comments from KGI.

Thai Beverage reported its fiscal third quarter net profit climbed 26 percent on-year to 7.66 billion baht (S$344.90 million or US$248.38 million) Wednesday amid higher contributions from the food, beer and spirits segments.

The stock ended Friday down 2.21 percent at S$0.89; the shares were up 45.9 percent year-to-date as of Friday.

These are analysts’ calls on the results:

KGI

Fiscal third-quarter results were “stellar,” and “far exceeds expectations” on growth across most business segments, KGI said in a note Monday. Earnings for the nine-month period accounted for 97 percent of its previous fiscal 2019 forecast, KGI added.

That spurred a target price increase to S$0.80 from S$0.75. But the brokerage kept a Neutral call.

“The fourth quarter tends to be a low month in terms of alcohol consumption seasonality in Thailand. Conservative investors may want to take some gains off the table,” KGI said.

The brokerage also pointed to an escalating “beer war” in Vietnam.

“Market share rivalry remains strong,” KGI said. “Heinenken has doubled sales force over the past three years with aims to take control over territory commanded by Sabeco.”

Sabeco contributed 71 percent of Thai Beverage’s total beer segment by volume as of the fiscal third quarter, KGI said.

RHB

RHB said the beverage maker’s earnings results came in ahead of its forecasts on strong contributions from its associates, as well as on higher sales volumes and better margins across all segments.

The spirits segment’s performance was “awesome,” growth was likely to temper as the improved sales and margins were attributed to double-digit sales of brown spirits to trade agents, the brokerage said in a note Friday.

RHB downgraded Thai to Take Profit from Buy, keeping the target price at S$0.92.

Daiwa

Daiwa said it remained cautious on the outlook for Thai Beverage despite a strong performance in the spirits division and from the joint ventures and associates.

“While we are pleased to see domestic alcohol volume growth in the current quarter, we believe consumer discretionary spending demand will be derailed by a slowing Thai economy, with farmers’ incomes taking a hit from what the Meteorological Department of Thailand calls the worst drought in a decade,” Daiwa said in a note Thursday.

The investment bank noted Pimpaka Nichgaroon, head of research at Thanachart, Daiwa’s partner in Thailand, recently cut her 2019E gross domestic product (GDP) growth forecast to 2.8 percent.

“The worsening drought situation in Thailand has yet to fully impact Thai farmers’ incomes but will likely be increasingly evident in the second half of 2019, in our view,” Daiwa said.

It kept a Hold call on Thai Beverage shares, with an unchanged S$0.88 target price.

CGS-CIMB

CGS-CIMB said the results were ahead of its forecasts, with the nine-month net profit coming in at 83.1 percent of its full-year forecast.

“We like that THBEV’s domestic business has stabilised and view Sabeco improvements as the next medium-term earnings growth driver,” the brokerage said in a note Friday.

“Hopes are that any stimulus plans by the Thai government will provide a boost to the lower-income population. This could keep domestic alcohol volumes in a growth mode from 4QFY9/19F onwards,” CGS-CIMB said. It added that it was positive on Sabeco’s plans to expand production capacity as that should spur demand growth.

CGS-CIMB increased its fiscal 2019-21 earnings forecasts by 2.1 percent to 2.9 percent on expectations cost rationalization at Sabeco will boost margins and on increased forecasts for associate earnings after the strong fiscal third quarter performance. CGS-CIMB also increased its valuation for Sabeco to reflect an “exciting medium-term outlook.”

The brokerage kept an Add call and raised its target price to S$1.00 from S$0.96.

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UOB KayHian

UOB KayHian said results were largely within its expectations.

But while the spirits segment showed improvement in the fiscal third quarter, the brokerage wasn’t optimistic on the fourth quarter.

“While a marginal sales volume growth may be expected, domestic spirits consumption looks to be normalising to levels seen in FY16-17 and we think a strong 4QFY19 would appear to be unlikely, given that farm income has only risen 0.4 percent year-on-year year-to-date, according to the Fiscal Policy Office for Thailand,” the brokerage said in a note Friday.

UOB KayHian lowered its fiscal 2019-21 net profit forecasts by up to 3 percent each to factor in costs of complying with changes to labor laws and on slightly lower volume growth assumptions.

It kept a Hold call on the shares, and raised its target price slightly to S$0.87 from S$0.85 on a higher valuation for the spirits business. It tipped an entry price of S$0.76.

DBS

DBS said earnings for the nine-month period accounted for around 84 percent of its full-year forecast, tracking ahead of expectations on better margins and associates’ contributions.

The bank pointed to Thai Beverage’s commentary saying domestic demand and government spending continued to grow, despite slower economic growth, and that farm income had risen slightly.

“These factors contributed to the improvement for the food and beverage industry and reaffirm our earlier views of a recovery ahead,” DBS said in a note Thursday.

DBS kept a Buy call with S$0.91 target price.

“Looking ahead, the fourth quarter tends to be a seasonally slower quarter. That said, we maintain our positive stance on the counter,” it said, citing earnings growth forecasts of 12 percent to 13 percent for fiscal 2019 and fiscal 2020 on volume recovery and domestic consumption.

DBS also cited improvements in Sabeco’s operations and optimism Thai Beverage would deleverage gradually on strong and stable cashflows.

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