Could Thai Beverage Be The Consumer Staple Choice For Value Investors?

The term “consumer staples” encompasses products such as food, beverages, tobacco, and household items. These are the types of things we are generally unwilling or cannot cut out regardless of our financial situation.

The attraction of stocks focussed on consumer staples is that their products are always in demand – at a relatively constant level – regardless of how the wider economy is performing.

Naturally such a diverse sector can be further broken down. Within Singapore, it is agricultural products that dominate the market. Companies focussed on such products account for around a-third of the consumer staples market by weighting.

The two biggest players within the industry by some way are Wilmar International Limited (SGX: F34) and Thai Beverage (SGX: Y92), which are capitalised at S$21b and S$18b, respectively.

Wilmar, which is Asia’s leading agribusiness group, would appear to be priced about right. Its P/E of 18 is slightly higher than the market average but a premium for a STI stalwart is only to be expected. Its price-to-book of one confirms it is reasonably priced, though its dividend yield of 2.3% fails to stir much excitement.

If Wilmar seems correctly priced then Thai Beverage certainly looks expensive. It’s P/E of 28 is higher than its recent historical P/E and double the market average. Its Price=to-Book is a hefty 4.8.

A couple of stocks offering up the margin of safety that value investors traditionally seek in the form of a low price-to book ratio are Golden Agri Resources (SGX: E5H) and China Minzhong Food Corporation Limited (SGX: K2N). The former is priced at half its book value, while the latter trades at a 40% discount.

This means in theory that you could buy either company outright and sell the parts for a decent profit. Both therefore seem very cheap.

Compared to earnings, China Minzhong Food Corporation comes better. It is priced at a multiple of just ten times its earnings compared to 24 times earnings in the case of GAR.

The leading integrated vegetable processor in China has a market capitalisation of S$675m and pays a dividend yield of 1.9%. But China Minzhong has debt – lots of it. Currently the company’s debt pile stands at S$2b, which is three times the market value of the business.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.