It believes there is significant headroom for a valuation re-rating as the company is trading at an attractive 11.1 times earnings, which is 1.7 standard deviations below its 15-year average price-to-earnings ratio. This also makes ThaiBev attractive against its peers as it is the cheapest regional alcoholic counter.

Can be cheaper? Lol

 

DBS Group Research has reduced its target price on Thai Beverage Public Company : Y92 +2.86% (ThaiBev) to S$0.75 from S$0.86 after accounting for higher market risk premiums.

 

This comes amid expectations that rates, although tapered, may stay elevated until the second half of 2024, the research team said on Monday (Nov 20).

 

The new target implies a potential upside of 38 per cent from ThaiBev&rsquo s last trading price of S$0.54 as at 2.42 pm on the same day. The food and beverage company&rsquo s shares were up 2.9 per cent or S$0.015 at the time.

 

The research team also called ThaiBev&rsquo s valuation &ldquo unjustifiably low&rdquo .

 

It believes there is significant headroom for a valuation re-rating as the company is trading at an attractive 11.1 times earnings, which is 1.7 standard deviations below its 15-year average price-to-earnings ratio. This also makes ThaiBev attractive against its peers as it is the cheapest regional alcoholic counter.

 

Looking ahead, DBS expects ThaiBev to return to earnings growth in FY2024 with the recovery of its Vietnam beer business, although this could be muted following a &ldquo dismal&rdquo FY2023. This could be offset by continued strength in the group&rsquo s spirits and Thailand beer business.

 

&ldquo We believe its spirits and Thailand beer business will continue to perform, with our economist projecting an acceleration in economic growth in Thailand to 3.8 per cent in the 2024 calendar year, from 2.8 per cent in 2023,&rdquo said DBS analysts Andy Sim and Chee Zheng Feng.

 

They noted there could be a boost from the government&rsquo s digital wallet scheme, which will inject 560 billion baht (S$20.86 billion) into Thailand&rsquo s economy.

 

Furthermore, Vietnam is well-positioned to recover next year. DBS holds the view that ThaiBev subsidiary Sabeco is &ldquo uniquely positioned&rdquo to weather the short-term consumer weakness in Vietnam, given its mainstream brand positioning.

 

The research team also anticipates an uplift in earnings from ThaiBev&rsquo s optimisation of its advertising and promotional spending.

 

It projects earnings to return to growth, up 7 per cent in FY2024 and 6 per cent higher in FY2025, supported by all segments and Vietnam in particular. In 2023, the research team observed an overstocked situation due to an unexpected slowdown in the economy and consumption.

 

DBS Group Research analysts Andy Sim and Chee Zheng Feng remain positive on Thai Beverage Y92 3.81% (ThaiBev), which the analysts call the &ldquo undisputed market leader [of beverages] in Southeast Asia (SEA).

 

&ldquo 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,&rdquo 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 &ldquo muted&rdquo after a &ldquo dismal&rdquo FY2023. Sabeco, ThaiBev&rsquo s brand in Vietnam, is also &ldquo uniquely positioned&rdquo 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.

 

&ldquo 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&rsquo s record profit),&rdquo write Sim and Chee.

 

In addition, they believe ThaiBev&rsquo s spirits and beer business in Thailand will continue to perform. DBS&rsquo 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 &ldquo buy&rdquo call with a lower target price of 75 cents, down from 86 cents previously to account for the higher equity risk premium. &ldquo 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&rsquo s average 15-year historical 12-month forward P/E, at 15.8x.&rdquo

 

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