SINGAPORE (Oct 26): Exotix Capital is initiating coverage on Thai Beverage with a &ldquo buy&rdquo recommendation and a target price of 90 cents.

&ldquo ThaiBev is on the verge of sustained earnings growth, powered by its foray into Vietnam and a turnaround in the Thai beer business,&rdquo says analyst Nirgunan Tiruchelvam in a report on Thursday.

After five quarters of sub-par growth due to the mourning period since the death of the king, the analyst expects vibrant growth in beer revenues in the next three years. In addition, ThaiBev&rsquo s investment in a 54% stake in Sabeco could create synergies and drive earnings in Vietnam, he says.

 

&ldquo [ThaiBev&rsquo s] core spirits business is on a sound footing despite recent weakness,&rdquo Tiruchelvam says. &ldquo The spirits segment will be the mainstay of Thai Bev&rsquo s profits, at over 80% of bottom line in our forecast period.&rdquo

At the same time, Tiruchelvam notes that concerns over ThaiBev&rsquo s leverage are&rdquo misplaced&rdquo . According to the analyst, ThaiBev&rsquo s headline net gearing stands at 1.5 times, while its interest coverage ratio has dropped from 27 times in 3Q18 to just 5 times in 4Q18.

&ldquo However, ThaiBev can bolster its balance sheet by disposing of its associate stakes in Fraser and Neave (FNN) and Frasers Property (FPL), which are collectively worth US$1.6 billion,&rdquo Tiruchelvam says.

The way he sees it, there is a high probability of a restructuring of ThaiBev&rsquo s holdings to bolster its balance sheets and intensify synergies.

&ldquo At 19x FY19f PE, Thai Bev is trading at 35% discount to its Asian liquor peers. At 5% FCF yield and 4% dividend yield, it is a rarity among high-growth consumer names,&rdquo says Tiruchelvam.

As at 4.43pm, shares in ThaiBev are trading half a cent lower at 62.5 cents &ndash some 36% off its 52-week peak of 98 cents recorded in November last year.

https://www.theedgesingapore.com/thaibev-started-buy-exotix-capital-ahead-expected-earnings-rally