DBS and UOBKH believe that headwinds will abate and economic activity will recover in 2H2024. Photo: The Edge Singapore

 

Following Thai Beverage (ThaiBev)&rsquo s 2QFY2024 results ended March, analysts from UOB Kay Hian (UOBKH) and DBS Group Research have kept their &ldquo buy&rdquo calls on the beverage producer. 

 

UOBKH has kept its target price unchanged at 70 cents, while DBS is keeping its target price under review. 

 

UOBKH&rsquo s ​ ​ Llelleythan Tan and Heidi Mo say that ThaiBev&rsquo s lower 1HFY2024 patmi of 15.2 billion baht ($550,000) a 5.6% y-o-y decline, was in line with their expectations. It formed about 50% of the analysts' full year forecasts. 

 

Tan and Mo say that the spirits segment benefitted from a better product sales mix and prudent cost control, while the beer segment outperformed. Both the nonalcoholic beverages and food segments reported strong growth as economic activity continues to recover, they add. 

 

The group&rsquo s 2HFY2024 core ebitda was 4.7% higher y-o-y as ebitda margin increased by 0.9 percentage points y-o-y, driven by margin expansion from the group&rsquo s core business segments, they note. 

 

The softer 2HFY2024 headline patmi was largely due to lower profit contributions from associates and joint ventures. Excluding these contributions, 2HFY2024 core patmi would have grown 2.1% y-o-y, the analysts say. 

 

ThaiBev&rsquo s outlook remains positive for Tan and Mo, who note that it has closed the market share gap between its number one competitor, while the new domestic entrant in 1QFY2024 gained insignificant market share peaking only at 1%. 

 

Despite stiff competition, the group expects selling, general, and administrative expenses (SG& A) spending to stay at current levels given rational competition, while raw material costs are expected to soften from lower packaging and malt prices, according to the analyst.

 

&ldquo Moving forward, higher tourist arrivals coupled with a warmer climate in Thailand is expected to boost beer volumes,&rdquo they say. &ldquo We now become more positive on the outlook for the beer segment and reckon that earnings have bottomed out in 2QFY2024.&rdquo

 

As the group declared an interim 1HFY2024 dividend of 0.15 baht/share, the same as the period a year before, the analysts maintain their expectation that the group will declare a FY2024 total dividend of 0.60 baht per share. This implies a 60% dividend payout ratio and 4.3% yield. 

 

On the back of lower profit contributions from associates and higher contributions from the beer segment, Tan and Mo have made slightly lower adjustments to their FY2024-FY2026 patmi estimates to 27.3 million baht and 34.7 baht million respectively. 

 

&ldquo In our view, we still reckon that ThaiBev remains attractively priced at near -2 standard deviation to its long-term average mean PE, backed by favourable tailwinds and a decent 4.3% FY2024 dividend yield,&rdquo they say. 

 

Likewise, DBS analysts cite strong volume recovery in the beer segment as a positive pricing effect on ThaiBev&rsquo s 2QFY2024 results, and note that earnings were dragged down by a significant decline in profitability at its associate company, Frasers Property , which booked fair value losses on its UK assets.

 

They note that 1HFY2024 tends to be seasonally stronger than 2HFY2024 due to festive effects, therefore ThaiBev&rsquo s first half performance was a slight miss.

 

Despite this, the analysts &ldquo take comfort&rdquo that ThaiBev&rsquo s 1HFY2024 ebitda margin was ahead of expectation at 18.2% (excluding associated companies), +0.9% percentage points y-o-y, which they believe investors will take more notice. 

 

&ldquo This highlights management&rsquo s strength in cost control, improving margins under challenging macroeconomic headwinds in both Thailand and Vietnam,&rdquo they note. &ldquo We are hopeful that these headwinds would abate in 2H2024 on continued tourism recovery in Thailand and manufacturing recovery in Vietnam.&rdquo