Thai Beverage - OCBC Investment 2019-05-28: In Better Spirits


Thai Beverage - In Better Spirits

Total returns of -1.6% since 2Q19 results

  • Since our downgrade to Hold (on 13 May, see report: Thai Beverage - Take A Breather) till 27 May’s close, THAI BEVERAGE (SGX:Y92) has posted total returns of -1.6%, vs. the STI’s -2.9%. Notably, the stock declined -7.3% on the first day post Thai Beverage’s 2Q19 results before reclaiming lost ground.
  • We believe the initial Thai Beverage's share price softness is likely due to two reasons.
    • First, expectations for growth in the domestic spirits segment were revised downwards after the latest set of results. See Thai Beverage's announcements. Recall that domestic spirit volumes for Thai Beverage fell 5.3% y-o-y in 2Q19, in contrast to the +24.3% domestic volume growth shown in 1Q19. Looking ahead, aside from the coronation-related celebrations in May, we expect more muted performance from the domestic spirits segment in the coming quarters.
    • Second, Thai Beverage had experienced an especially sharp rally YTD prior to the 2Q19 results release – Thai Beverage had posted total returns of 37.2% YTD, vs. the Straits Times Index’s 8.6% as at 10 May’s close – and the sharp decline seen on the first day post results is perhaps in response to the strength of that rally. See STI constituents share price performance.

Is it worth collecting ThaiBev shares now?

  • Valuations look reasonable but are not particularly compelling to us, as at 27 May’s close. According to Bloomberg consensus, Thai Beverage is currently trading at a blended forward P/E of 17.8x which is near its 5-year average of 18.2x.
  • While valuations are undemanding, we note that regional economic growth remains an important variable for the company’s outlook given its discretionary consumer product portfolio. We continue to monitor the US-China trade tensions and its ramifications for global growth closely.
  • On the bright side for Thai Beverage, we expect the positive synergies from the Sabeco acquisition to flow through to its bottom line, though this will take time.

F&N acquires Starbucks Thailand through partnership

  • Separately, associate FRASER AND NEAVE, LIMITED (F&N, SGX:F99) announced that it has, through a partnership with Maxim’s Caterers Limited, entered into an agreement to acquire the entire issued share capital of Starbucks Coffee (Thailand). Maxim’s has a long-standing partnership with Starbucks, having been operating and developing Starbucks retail coffee stores as Starbucks’ licensee since 2000.
  • F&N expects the acquisition to be earnings accretive for the current financial year ending 30 Sept 2019 and to be funded from a mix of debt and equity financing. The acquisition is expected to be completed by end-May.
  • We see this development as a positive for Thai Beverage, as it extends its presence and product portfolio through the collaboration with F&N.
  • After updating our cost of equity, our fair value dips from S$0.88 to S$0.86. We maintain HOLD on Thai Beverage.

Deborah Ong OCBC Investment Research | 2019-05-28
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.86 DOWN 0.880