ThaiBev update

THaiBev - this is the sharing gather from our IN FA expert comments after THaiBev released it's 1Q 2018 result : Quote : Jeremyowtaip

here it goes my thoughts on their latest results.

I can sense that their 2Q18 results is getting slightly better than 1Q18 results.

However, they are still running in the cost of acquisition of the various new businesses and also higher finance costs due to chalking up huge debts. 

I also sense that their operating environment for most of their business segments are still challenging especially their top two revenue and earnings contributors in spirits and beer are still facing decline in profitability even if we exclude the non-recurring costs and expenses related to the acquisitions.

 I think this is something investors in Thai Beverage ought to find out why is there a decline in profitability in theses two top segment contributors even after the mourning period for their Thai King is over. Perhaps their domestic beverage industry is still continuing to face headwinds resulting in sustained decline in profitability though the decline in 2Q18 is not as steep as in 1Q18 as a general whole for Thai Beverage buffered by new contributions to the top line and bottom line through the various new acquisitions. 

Or perhaps some of the new acquisitions have not managed to pull in a good showing yet in their results.

Based on their published results, these are their performance as follows.

2Q18 vs 2Q17
Revenue = +34.3%
Profit attributable to shareholders (excluding non-recurring expenses) = -3.2%
Diluted EPS (excluding non-recurring expenses) = -3.8% 

Profit margin attributable to shareholders = 13% (2Q17) vs 9.3% (2Q18)

1H18 vs 1H17
Revenue = +16.5%
Profit attributable to shareholders (excluding non-recurring expenses) = -17.9% 

Diluted EPS (excluding non-recurring expenses) = -17.9% 

Profit margin attributable to shareholders = 14.7% (1H17) vs 8.1% (1H18)

Breakdown on performance of individual business segments according to their attributable profits (losses) as follows.

2Q18 vs 2Q17 

Only spirits, food and F&N/FPL increased their profits. Food segment though a small contributor of profits increased very significantly in it's profits. Spirits segment which is the most important top contributor only increased profits by 2.8%. The second important profit contributor beer segment decreased significantly in profits by 66.7% while non-alcoholic beverages segment suffered deepening losses.

1H18 vs 1H17
Only food segment increased significantly in profits. All other segments decreased in profits over this period y-o-y. Top most important profit contributor spirits segment decreased by 10.5% in profits. Second important profit contributor beer segment decreased in profits by 40.2%.

In conclusion, I sense that Thai Beverage is still facing challenges in most of it's business segments notably the non-alcoholic segment. 

The top two most important profit contributors the spirits and beer segment also seen a decline in their profitability. But on a general whole, Thai Beverage seemed to see a less steep decline in profitability in 2Q18 than 1Q18 buffered by contributions to top line and bottom line through the various new acquisitions made.

The huge amount of debts they now carry seem to be still a big concern to take note of. However, given the strong generating cashflows in it's businesses, Thai Beverage may still be able to manage this huge debt they now carry.

 They just need to be careful to reduce the debts over time to a manageable level and not do anything stupid to blow things up. The dividends may be reduced in future to allow channeling more retained earnings and cashflows towards reducing debts over time.

On the valuation side at a share price of $0.80, Thai Beverage is now trading at EV/EBITDA of about 16.5 which makes it now super expensive to own due to the huge amount of debts it has taken up.

 The current P/B ratio of about 3.8 also suggest it is expensive to own Thai Beverage based on an average ROE of about 24% (over the past 5 years) and the prospects of ROE falling due to declining profitability in the short to mid-term.

I think It would be better to wait out for their debts to be reduced and earnings to continue to grow from their new acquisitions over time and/or share price to fall to a lower level before it becomes attractively cheap to own.

Maybe that is where a TA view may shade some lights about current share price What is price entry point  whereby the support will be strong and worth considering to accumulate shares of Thai Beverage. But 
on a FA side, I certainly stand by my view that a lower share price at this current point is more attractive than current price to pay for their current fundamentals. I think the market is currently pricing in optimism that things will be running smooth for Thai Beverage going forward meaning that their debts will be reduced and profitability and cashflows will increase going forward. That is what I see now based on the current price support given Thai Beverage by Mr Market.

 The strong support is at 79.5/80. Once broken it may retest the recent low of 78. A rebound may likely happen ! If it cannot hold then it may go down again ! I think Yield will be cut and going lower with higher interest bearings for next 1-2 years . Yield could be hovering at 2.5% or lower . Not attractive as compare to Sheng Siong.

Not a call to buy or sell.

Please do your own due diligence.