Goldman Sachs: Thai Beverage Pcl world’s cheapest alcohol stock

Bottles of Thai Beverage Pcl (ThaiBev) Chang beer move along the production line at the company’s Beer Thip brewery in Bang Ban, Ayutthaya province, Thailand, on Friday, Oct. 5, 2012. (Bloomberg pic)

SINGAPORE: Thai Beverage Pcl has earned the title of the world’s “cheapest alcohol name” at Goldman Sachs, as the Bangkok-based brewer is now the worst performer in its consumer stocks coverage.

And analysts led by June Zhu say a turnaround in its operations next year will give the stock a nice lift.

Since losing S$7.3 billion (US$5.3 billion) this year, ThaiBev now trades at 14.9 times of future earnings – below its 10-year average – while the MSCI World Beverages Index trades at 20.1 times, according to data compiled by Bloomberg.

“The stock has reached its bottom, both on earnings and valuation,” June Zhu and Manik Mahajan, analysts at Goldman Sachs (Singapore) Pte wrote in a report last week. “FY19 will mark the start of the turnaround” due to forecast improvements in farm incomes, wages and election spending.

The company’s management is anticipating that higher agricultural income in Thailand and a strategy to replace short-term debt with long-term loans will improve finances next year.

Sanford C. Bernstein analysts Euan McLeish and Yan Li upgraded the stock to market-perform from underperform on Friday, saying the stock’s valuation “now fairly reflects the weak domestic outlook and the lack of upside from the recent acquisitions.”

Goldman’s Zhu, who last week reiterated her buy rating on the stock from July 30, says investors should monitor the company’s progress on sales volume, revenue growth at its Vietnamese unit, cost controls and debt management. Even so, she cut the target price to S$0.74 from S$0.94 on Wednesday, citing a lack of visibility in the next six months.

Of the 16 analysts covering the stock as tracked by Bloomberg, only two brokerages have sell-equivalent ratings. Phillip Capital, which has a reduce rating, said on August 17 that it’s still worried that weak disposable income might continue to weigh on prospects. JPMorgan’s Kae Pornpunnarath has an underweight rating.