Atiqah Mokhtar Published on Thu, Jul 01, 2021
UOB Kay Hian analyst Lucas Teng remains upbeat on Thai Beverage (ThaiBev) despite a week that saw Thailand tighten Covid-19 restrictions.
He reiterates his ‘buy’ call for ThaiBev with an unchanged target price of 92 cents.
Teng’s bullishness is partly underpinned by ThaiBev’s continued ‘premiumisation’ of its product portfolio, which includes enhancing the bottling of Hong Thong brown spirits as well as introducing new beer variants such as the higher-priced Chang Cold Brew, the coffee-infused Chang Espresso, and Sabeco’s Bia Saigon Chill.
In addition, Teng views that ThaiBev’s strong cash flow from operations, driven by the majority of its sales being on cash-before-delivery terms, will allow the company to manage its debt levels. “Gearing levels have improved in recent years and are well below the high of 1.7 times seen in FY2018,” he says.
The Thai government is targeting to reopen tourism in mid-October, with Phuket testing a sandbox travel mode from July allowing entry of travellers without quarantine as well as dine-in consumption. However, on-trade alcohol consumption in most regions is still banned, and restrictions were tightened in select regions the past week due to increased cases.
Nonetheless, Teng believes the reopening timeline, coupled with accelerating vaccination rates, is encouraging. In the meantime, he expects ThaiBev’s earnings to remain robust on its off-trade sales, which make up the bulk of its revenues – ThaiBev’s beer sales are 80% off-trade, while its spirit sales are 95% off-trade.
Given the skew towards off-trade sales, Teng concedes that while an ease in Covid-19 measures will aid on-trade alcohol consumption, this may not have an obvious impact on ThaiBev’s earnings.
Instead, a more significant outcome could be the revival of ThaiBev’s plans to spin-off its beer segment, which were deferred due to the pandemic.
For now, Teng keeps his earnings forecasts unchanged. “We expect core net profits to increase 11% y-o-y in 2HFY2021, given the full alcohol ban seen in 3QFY2020,” he says.
Shares in ThaiBev closed flat at 67.5 cents on July 1.