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Broker's take: OCBC downgrades ThaiBev to 'hold' on weak sales, social distancing measures

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OCBC Investment Research has downgraded Thai Beverage Public Co (ThaiBev) to "hold" and lowered its target price to 71 Singapore cents from 90 cents in light of its weaker sales and social distancing measures in Thailand.

OCBC Investment Research has downgraded Thai Beverage Public Co (ThaiBev) to "hold" and lowered its target price to 71 Singapore cents from 90 cents in light of its weaker sales and social distancing measures in Thailand.

ThaiBev shares were trading at 65.5 cents as at 11.32am on Wednesday, down 0.5 cent or 0.8 per cent.

In a research note published on Wednesday, analyst Chu Peng noted ThaiBev's second-quarter net profit declined 14.5 per cent on the year to 4.95 billion baht (S$220 million).

Revenue from the company's spirits, beer and food businesses fell 3.9 per cent, 23.5 per cent and 8 per cent year on year respectively due to lower sales volumes as a result of the coronavirus crisis, the introduction of drink-driving laws in Vietnam this year, and fake news regarding the ownership of the company, Mr Chu noted.

He added that Thailand's social distancing measures - which include mandatory closures of entertainment venues and restaurants from March to April and a ban on alcohol sales in April - would "inevitably affect" ThaiBev's sales, particularly for its beer business.

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"The ban on alcohol sales was lifted on May 3, but people will only be able to drink at home and not in restaurants when they reopen," Mr Chu wrote.

"While this could support ThaiBev’s sales volume, Thailand’s soft economic growth outlook, with government officials expecting 2020 gross domestic product growth to contract by 5 per cent to 6 per cent, night curfew and social distancing would remain a drag (on earnings)."

At its online results briefing last Friday, ThaiBev said it is expecting off-premise consumption to become the new normal.

Off-trade consumption is likely to be accelerated as consumers become more accustomed to purchasing online or from supermarkets during the lockdown, it added.

The company pointed out that it is fortunate to have a strong off-trade portfolio compared to competitors that are more focused on the on-trade business.

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