On 14 Feb 2018, Thai Beverage announced its earnings report for first quarter ended 31 Dec 2017. According to The Business Times, its net profit fell by about 62% in the first quarter. This is largely due to “non-recurring business acquisition costs of 2.35 billion from the four acquisitions it completed in the first quarter.” ThaiBev and a Vietnam partner spent about over 110 trillion dong to obtain slightly over 50% interest in Sabeco. Sabeco’s operating results will be included in ThaiBev’s 2Q18 financial statements onwards, The Business Times reported.
With the omission of one-off finance expenditures like the acquisition of Sabeco, net profit only dipped about 29%. This also means the earnings per share only fell by 32%.
For its revenue, it dropped by 2.6% because drinks consumption in the local market recovered slower than expected due to the incomplete recovery of the domestic Thai economy, ThaiBev reported. The sales of the local alcoholic drinks were affected by destocking of sales agents’ inventory.
Although there is a rise in sales volume of spirits due to a different product mix, its revenue dropped by about 6%. Its net profit also fell by about 21%.
Due to the increase of advertising and promotion and employees’ expenses, beer’s revenue fell by 4% while its net profit dipped by about 30%. Despite the fall in sales volume of beer by about 6%, the group claimed that its beer market share was unchanged.
Revenue of non-alcoholic drinks increased by about 6%, reducing the business’s net loss by 5%.
The sales of the food business in ThaiBev rose by about 42% while its net profit jumped quite substantially.
The group’s share price dipped from 91 cents to 85 cents by about 6.6% after the announcement of operating results from Thai Beverage.
My opinion on what to do if you are vested in this counter
Don’t freak out when you hear that ThaiBev’s overall net profit is down by 62%. This is because its drop in profits is mainly due to acquisition costs. Costs that will benefit the company and its shareholders in the long term. The management is not spending on worthless or unprofitable projects. According to DBS Equity Research, ThaiBev aims to “increase its beer market share to 45% by 2020 as it targets to achieve the lead company in the industry.” That means its beer revenue should potentially increase by 2020. So, in my opinion, the recent sell-off of ThaiBev shares is over-reactive. It can be a buying opportunity to purchase cheaper shares since it is still profitable (no overall net loss). Definitely, there are fluctuations in ThaiBev’s operating performance in the short and medium term. Which makes it risker to own its shares than a REIT’s or bond’s share. If you find it hard to sleep at night due to the roller-coaster performance of ThaiBev, you may need to consider allocating your funds to less risker assets. Based on its share price chart (click on the link and click ‘Max’ on its price chart), ThaiBev has been on a uptrend since Nov 2011. This recent sell-off should recover, in my opinion. As you can see from The Business Times, the group also mentioned that Sabeco’s results is included in the next quarter statements. My prediction is that ThaiBev’s overall net profits would be higher than now. So, in my opinion, if you had cash, now is a good buying time to scoop up some cheap ThaiBev shares as it is likely to rise in price when good corporate news is announced.
Again, the above blog post is my opinion and should not be taken as recommendation to buy or sell any shares. Please do your research before buying any stocks. If in doubt, please consult a financial adviser. I am not responsible for any financial loss you have in owning ThaiBev.
Thanks for reading guys. Have a prosperous Chinese New Year!