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OCBC Investment Research is downgrading its “buy” to “hold” recommendation on Thai Beverage (ThaiBev), while lifting its fair value estimate for the stock from 83 cents to 89 cents.
In a Thursday report, lead analyst Jodie Foo notes that ThaiBev’s share price, following 1Q16 results, has “done well thus far” and serves as a “testament to the success of its new marketing strategy for Chang Beer”. It is partially in observation of this sharebro price run-up that the stock has been downgraded.
“Recall that (ThaiBev’s) market share for beer had increased from 30% to ~40% and (its) ASP, volume and net profit had improved significantly,” says Foo, adding that it is this segment that will help to drive its growth in the years to come.
Foo also reckons that the group’s Vision 2020 strategic roadmap revenue contributions from the NAB and countries beyond Thailand could potentially be accelerated by mergers and acquisitions (M&A) as well as corporate restructuring involving TCC, F&N, FCL and ThaiBev.
However, the upside to ThaiBev’s share price remains limited, which is another reason for the research house’s decision to downgrade.
OCBC estimates there will be only a 1% revenue growth for ThaiBev in the domestic spirits market due to maturity of the industry, despite an 82% volume share recorded in 2015 according to Euromonitor. There is a possibility that the group will narrow its losses this year in the non-alcoholic beverage (NAB) segment, but high SG&A expenses will inevitably be incurred with the launch of new products, says Foo.
Overall, Foo maintains that he remains positive over the group’s growth prospects in the years ahead. He advocates longer term investors to consider accumulating at 85 cents and below.
ThaiBev closed at 92 cents.
This article first appeared in The Edge Singapore Market Report.