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Hot stock: ThaiBev down 7% on weak Q1 results; most analysts put stock on 'hold' or 'under review'

ANALYSTS have made bearish calls on Thai Beverage (ThaiBev) shares after the group posted first-quarter results that were well below expectations.

OCBC placed its rating and fair value (FV) estimate for the stock 'under review', while UOB Kay Hian downgraded to a 'hold' call, reducing its target price to S$0.99, from S$1.06 previously.

Similarly, CIMB maintained a 'hold' call on the counter and reduced its target price from S$1 to S$0.98.

DBS Group Research bucked the trend, maintaining its 'buy' call on the stock, though it revised its 12-month target price to S$1.02 from S$1.07 previously.

As at 11.19am on Thursday, ThaiBev was trading down 6.59 per cent, or six Singapore cents to S$0.85 apiece. Some 82 million shares changed hands, making it the most actively traded counter on the Singapore bourse in the morning trade.

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This comes as the group posted a first-quarter net profit of 2.91 billion baht (S$122 million), a 62.3 per cent plunge from the same period last year. Earnings per share was 0.12 baht, down 61 per cent.

The fall was largely due to non-recurring business acquisition costs of 2.35 billion baht from the four acquisitions it completed in the first quarter, ThaiBev said.

Chief among these, ThaiBev and a Vietnam partner paid more than 109.9 trillion dong (S$6.53 billion) for a 53.59 per cent stake in Saigon Beer-Alcohol-Beverage Joint Stock Corp (Sabeco).

Net profit excluding the finance costs for Sabeco and other non-recurring expenses was 29.3 per cent lower at 5.48 billion baht. This translated into a 32 per cent drop in earnings per share from the same period a year ago to 0.21 baht.

"With regards to the bridging loan ThaiBev provided to its 49 per cent-owned associate, Vietnam Beverage (VB) to finance the acquisition of Sabeco, management noted that it is in the process of converting the bridging loan to a long-term shareholder loan to VB," said OCBC analyst Eugene Chua.

"While ThaiBev reiterated the shareholder loan will generate interest income, its current plan of de-leveraging through repaying bank loans using internal cash and dividends from the acquired companies seem to be insufficient," Mr Chua added.

CIMB analysts Cezzane See and Lim Siew Kee also expressed surprise about how long it will take VB to repay loans used to fund the Sabeco deal. ThaiBev had previously guided that such loans would be repayable within 12 months. This guidance has now been extended to two years.

"To recap, ThaiBev is bearing 100 per cent of the deal's acquisition costs of 156 billion baht; despite only having an estimated 26.3 per cent stake in Sabeco. This elevates ThaiBev's balance sheet risk, keeping net gearing levels above 1x in FY18-20F versus 0.2-0.3x historically," the CIMB analysts said.

Meanwhile, UOB analysts Thai Wei Ying and Andrew Chow cite uncertainties on the Sabeco acquisition, "specifically in terms of potential refinancing and repayment plans by its joint venture partners".

DBS however, maintained a positive view on the stock as it deemed the hit to ThaiBev's Q1 results as temporary.

"While its share price may be affected in the near term on the underwhelming Q1 FY18 results, we continue to hold a positive view on the counter over the medium and longer term. We believe the weak Q1 FY18 results are temporary, and a function of 'post-excise blues' coupled with a confluence of factors, such as one-off acquisition transaction costs and weaker associates contribution," said DBS analysts Andy Sim and Alfie Yeo.

They added that catalysts could come from clarity of plans, potential synergies, and tangible results from the group's recent acquisitions.

In November last year, ThaiBev noted that Thailand's beverage industry was affected by a slowdown in consumption during the mourning period for the late Thai king and a new Thai excise tax law. The new act changes the base of excise tax calculation from last wholesale prices to recommended retail prices, and imposes tax on sugar content in non-alcoholic beverages.

ThaiBev is due to hold its annual information meeting for shareholders on Feb 21.

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