Would Warren Buffett Buy Thai Beverage?

Ser Jing - Thai Beverage First Quarter Results, Weighed Down by Acquisitions (pic)Warren Buffett has over the years passed on lots of sage advice and priceless tips to investors. Perhaps one of the best pieces of advice comes from his love of baseball.

He once said that the stock market is a “no-called-strike” game. In other words, you don’t have to swing at everything that is pitched at you. You can afford to wait for the right ball pitch.

So, would Warren Buffett take a swing at Thai Beverage (SGX: Y92)?

Buffett likes companies with low earnings volatility. In other words, he warms to businesses that are able to deliver stable earnings. Thai Beverage comes close to what Buffett would describe as a company with reliable profits. Both operating income and net income have been consistent – almost to the point of being unexciting.

The brewer has also demonstrated consistency in terms of its Net Income Margin. With the notable exception of last year, the company’s Net Income Margin has hovered around the 10% mark.

However, the margin is about 50% lower than the average for Singapore’s blue chips. The median for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 18%. Additionally, it is lower than, say, rivals such as SABMiller (LSE: SAB), which boasts higher gross and net income margins.

But what Thai Beverage lacks in margin, it more than makes up for in efficiency, which is another of Buffett’s investing criteria. Its Asset Turnover is one of the highest amongst Singapore’s large caps. At 1.1, the company is generated $1.10 of revenue for every dollar of asset employed in the business. By comparison, the average Asset Turnover for Singapore’s blue chips is 0.50.

That is about as good as it gets for Thai Beverage – it fails on the last two criteria for a good Buffett stock. Warren Buffett takes a dim view of companies that use excessive leverage. And Thai Beverage’s Leverage Ratio of 2.4 is about 40% higher than the average for Straits Times Index companies. Additionally, the company’s share price volatility of 35% is almost double that of Singapore’s blue chips.

On balance, then, Thai Beverage is unlikely for the moment to figure highly on Warren Buffett’s list of attractive companies.

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