IBIL's Increased Stake In Fraser And Neave Will Expand Future Market Reach

Key Takeaways

• Improved operational efficiencies and reduced costs in the beer business are expected to enhance profitability and increase net margins.
  
• Successful marketing and strategic expansions in nonalcoholic beverages could significantly boost sales volumes and revenue growth.
  
• Rising costs and market uncertainties are adversely affecting profitability and operations across multiple segments, threatening Thai Beverage's margins and future growth prospects.

Catalysts

Produces and distributes alcoholic and non-alcoholic beverages, and food products worldwide.

• The increase in IBIL's percentage interest in Fraser and Neave Limited could drive future growth in revenue through enhanced synergies and expanded market reach.
  
• The beer business’s improved operational efficiencies and lower raw material costs are expected to positively impact net margins, supporting higher profitability in future quarters.
  
• The successful marketing campaigns and distribution expansion in the nonalcoholic beverages segment could lead to increased sales volumes and revenue growth.
  
• The potential IPO of BeerCo amidst improved market conditions could unlock shareholder value and provide a capital infusion for future expansion, impacting earnings positively.
  
• Cost control measures and improved efficiency in SG&A expenses could further boost net margins and profitability, particularly in competitive markets like Thailand and Vietnam.

Thai Beverage Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Thai Beverage's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 8.8% in 3 years time.
• Analysts expect earnings to reach THB 33.3 billion (and earnings per share of THB 1.32) by about December 2027, up from THB 27.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 0.6x on those 2027 earnings, down from 13.4x today. This future PE is lower than the current PE for the SG Beverage industry at 24.8x.
• Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.71%, as per the Simply Wall St company report.

Thai Beverage Future Earnings Per Share Growth

Risks

• The increase in raw material costs and higher investments in brand and marketing activities have negatively impacted the net profit of the spirits business, which declined by 4.6% year-on-year. This could pressure the company's net margins and profitability.
  
• The food business, despite a rise in sales revenue, experienced a decline in net profit due to higher raw material costs and increased operational expenses, which may impact overall earnings if not addressed effectively.
  
• The publishing and printing segment saw a decline in sales revenue of 6% year-on-year due to lower international demand and business unit closures, possibly affecting the company's revenue streams and diversification efforts.
  
• There is uncertainty surrounding the potential liberalization of licensing laws for spirits in Thailand, which could introduce new competition and impact the company's market share and future revenues.
  
• The reliance on official exchange rates in Myanmar, amidst market uncertainties, may expose the company to currency risk, potentially affecting the financial performance of operations in that region.

Valuation

• The analysts have a consensus price target of THB 0.67 for Thai Beverage based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of THB 0.85, and the most bearish reporting a price target of just THB 0.56.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be THB 380.1 billion, earnings will come to THB 33.3 billion, and it would be trading on a PE ratio of 0.6x, assuming you use a discount rate of 7.7%.
• Given the current share price of THB 0.57, the analyst's price target of THB 0.67 is 14.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.