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Broker's take: CGS-CIMB upgrades ThaiBev to 'add' as share price back at low levels

IT'S now "back to happy hour" for shares of beer and liquor maker Thai Beverage Public Co (ThaiBev), as the stock price has fallen to trade below its minus-two standard deviation level, said CGS-CIMB.

The dwindling number of daily Covid-19 cases in the group's major markets, Thailand and Vietnam, also bodes well for recovery in those countries.

This is thus an opportune time to accumulate the stock, the brokerage said in a note dated Wednesday as it upgraded the beverage giant to "add" from "hold" and kept the target price at 70 Singapore cents.

ThaiBev shares were trading at 58.5 cents as at 4.05pm on Thursday, down 0.5 cent or 0.9 per cent.

Analyst Cezzane See noted that the stock price has fallen about 35 per cent since the start of this year from its peak of 90.5 cents on Jan 2.

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That means ThaiBev has underperformed Singapore's benchmark Straits Times Index, which has declined by 23.7 per cent in the year to date.

The stock is also trading below its five-year minus-two standard deviation level of about 15 times price-to-earnings (P/E) ratio, and below regional peers' 26 times P/E for 2021.

CGS-CIMB believes the risk-reward ratio is now skewed to the upside for longer-term investors.

ThaiBev's share price is now closer to its 2018 low of 57.5 cents, when its Thai domestic alcohol sales volume had fallen due to weaker discretionary purchasing power, an elderly fund tax at the beginning of 2018, and increased product prices after higher excise tax rates were implemented at end-2017.

"We think near-term conditions have improved for longer-term investors who are looking to revisit recovery plays and ride out the political uncertainties in Thailand," Ms See said.

As the number of new daily coronavirus cases continues to dwindle, beer and liquor volumes in Thailand and Vietnam may improve, she added.

In July, Thai alcohol sales volumes gradually recovered, with selected domestic Thai liquor sales rising 17.4 per cent year on year and beer sales increasing 26.5 per cent.

However, in the same month, Vietnam's industrial beer production fell, likely due to the country's second wave of Covid-19 cases that started in July, in CGS-CIMB's view.

ThaiBev may also see a boost from Thailand's upcoming government stimulus measures, which may support consumer purchasing power in FY21.

CGS-CIMB raised its estimates for FY20 earnings per share by 4.8 per cent on higher revenues and better margins, although it kept them largely unchanged for FY21-22.

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