Asia: DBS Group Research analysts remain positive on ThaiBev’s performance

DBS Group Research analysts Andy Sim and Chee Zheng Feng remain positive on Thai Beverage (ThaiBev), which the analysts call the “undisputed market leader [of beverages] in Southeast Asia (SEA), The Edge Singapore reported on November 20.

“Its portfolio of alcoholic and nonalcoholic brands includes Chang, Saigon Beer, Hong Thong, Mekhong, Grand Royal, and Oishi green tea, amongst others. These brands have held dominant market share in their respective geographies in the past decade. The group also has exposure in the food business, and hold franchises for KFC and Starbucks, in Thailand,” they write in their Nov 20 report.

ThaiBev is expected to return to earnings growth in FY2024 with the recovery in the performance of its beer business in Vietnam, which was “muted” after a “dismal” FY2023. Sabeco, ThaiBev’s brand in Vietnam, is also “uniquely positioned” to weather the short-term consumer weakness in Vietnam given its mainstream brand positioning. The analysts also expect to see an uplift in earnings from the optimisation of advertising and promotion (A&P) spending.

“We expect to see growth in volume and an earnings recovery towards 2HFY2024 and pencilled in 8% top-line and 15% patmi growth in FY2024 (back to 2018 level of profitability, but only at 80% of FY2022’s record profit),” write Sim and Chee.

In addition, they believe ThaiBev’s spirits and beer business in Thailand will continue to perform. DBS’s economist has projected Thailand to see a boost in economic growth to 3.8% in 2024 from 2.8% in 2023 with a boost from the 500 billion baht ($19.1 billion) digital wallet scheme.

Meanwhile, Sim and Chee have kept their “buy” call with a lower target price of 75 cents, down from 86 cents previously to account for the higher equity risk premium. “We valued the company using a sum-of-the-parts (SOTP) methodology with revised assumptions of a higher discount rate. Our target price also equates to ThaiBev’s average 15-year historical 12-month forward P/E, at 15.8x.”

At its last-traded share price of 52.5 cents as at Nov 17, the analysts deem ThaiBev’s current valuation as “unjustifiably low” at -2 standard deviation (s.d.) of its 15-year historical forward P/E low despite the group’s consistent earnings growth. As such, investors should load up on the stock before its price increases.

21 November, 2023