DBS: Last chance to buy ThaiBev’s dip?

Chang Beer, made by Thai BeverageChang Beer, made by Thai Beverage

This may be the last chance to buy the dip in Thai Beverage’s shares as the company is transforming into the region’s leading beverage player, picking up market share in Thailand and Vietnam, DBS Group Research said in a note Monday.

“With another Covid-19 wave potentially in the offing in Vietnam, THBEV’s share price may see near-term volatility and this may offer a good buying opportunity given the progress that Thailand and Vietnam are making in vaccinations and reopening” DBS said.

The bank raised its earnings forecasts for fiscal 2022 and 2023 by 7 percent and 5 percent respectively, citing the potential return of the planned BeerCo initial public offering (IPO) and the expected improvement in margins in the spirits segment as molasses prices are forecast to trend lower.

ThaiBev’s cost control and productivity measures implemented during the pandemic can help it keep costs below pre-Covid levels, even though advertising spending is expected to rise near-term as reopening progresses, DBS said.

The bank said the stock was trading at around 14.6 times its fiscal 2022 price-to-earnings, below its average.

“We believe this is not pricing in its potential as Southeast Asia’s largest F&B player,” DBS said. “Its valuation is attractive.”

Earnings ‘in line’

Thai Beverage reported Friday its fiscal year net profit rose 4.9 percent on-year to 27.34 billion baht, due to non-recurring expenses in the previous year and 2.66 billion baht of deferred tax utilization related to the beer business restructuring. Net profit excluding non-recurring items declined 4.8 percent on-year to 27.34 billion for the 12 months ended 30 September, ThaiBev said in a filing to SGX.

Revenue from sales fell 5.1 percent on-year to 240.54 billion baht, the company said.

“This was due to a decrease in sales revenue of all business segments driven by Covid-19 situation, which was more severe than last year,” ThaiBev said.

“Thailand’s alcoholic and non-alcoholic beverage industry in 2021 contracted as a result of the containment measures such as the mandatory closure of entertainment businesses (pubs, bars, and karaoke outlets), and the prohibition of alcoholic beverage consumption in restaurants have inevitably affected the industry. However, beverages that are mostly consumed via off-trade channels, such as spirits, were not significantly affected,” the Chang beermaker said.

DBS said the results were largely in line with its estimates.

“Overall, the resilient results are commendable, considering the strict COVID-19 restrictions implemented in Vietnam and Thailand,” DBS said.

DBS kept a Buy call with a S$0.92 target price.

Separately, Nomura rates the stock at Buy with a S$0.90 target price.

In a report Friday, Nomura said it expected a sales recovery as Thailand reopens and restrictions are lifted, and noted the company has prepared for the effect of commodity price rises.

Nomura noted the stock was trading at 14.7 times its fiscal 2022 earnings forecasts, below its historical average of 17.1 times.

Shares of Thai Beverage ended Monday down 1.44 percent at S$0.685. That was in line with a 1.44 percent decline in the Straits Times Index amid concerns over the spread of a new virus variant.