DBS Group Research has reduced its target price on Thai Beverage Public Company : Y92 0% (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’s last trading price of S$0.54 as at 2.42 pm on the same day. The food and beverage company’s shares were up 2.9 per cent or S$0.015 at the time.

The research team also called ThaiBev’s valuation “unjustifiably low”.

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 “dismal” FY2023. This could be offset by continued strength in the group’s spirits and Thailand beer business.

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“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,” said DBS analysts Andy Sim and Chee Zheng Feng.

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

Furthermore, Vietnam is well-positioned to recover next year. DBS holds the view that ThaiBev subsidiary Sabeco is “uniquely positioned” 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’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.