Thai Beverage Public Company Limited (SGX: Y92) is a company operating in four different segments, namely, Spirits, Beer, Food, and Non-Alcoholic Beverages. Year-to-date, Thai Beverage’s share price is down more than 35% to S$0.59 at the time of writing. This might entice investors to start buying its stocks. Yet, there are a few things that investors should know before buying Thai Beverage shares.
2018 financial performance
After growing its revenue and profit for a number of years, Thai Beverage faced some challenges that resulted in weaker profitability in 2018.
For the year ended 30 September 2018 (FY2018), Thai Beverage reported that revenue was up 20.9% year-on-year to THB 229.7 billion. Yet, EBITDA (earnings before interest, tax, depreciation and amortisation) fell by 19.8% as compared to last year to THB 36.2 billion.
Similarly, net profit attributable to shareholders tumbled 46.3% year-on-year to THB 18.5 billion. Excluding one-off items, net profit attributable to shareholders would have dropped by 19.1% instead. The lower attributable profit was due to lower profits across all segments (with the exception of the Food segment).
Thai Beverage’s recent performance shows that even a company that has delivered stable performance in the past will face declines in profitability.
Weaker balance sheet
A company must be able to withstand the ups-and-downs in the business cycle to continue operating and growing over a long period. To do so, it must have a strong balance sheet so that it can: 1) satisfy its existing operational and financial requirements (including paying out dividends); and 2) invest in future growth.
Generally speaking, a company with a strong balance sheet will have plenty of cash in its bank and a reasonable debt-to-equity ratio (not more than 100%).
In the case of Thai Beverage, its balance sheet has weakened in 2018.
As at 30 September 2018, it had cash and cash equivalents of THB 22.5 billion and total borrowings of THB 231.3 billion. This gives a net debt position of THB 208.8 billion, up from the THB 30.7 billion recorded on 30 September 2017. Similarly, its gearing ratio (Net Interest Bearing Debt to Equity Ratio) was up from 0.23 times, as at 30 September 2017, to 1.49 times, as at 30 September 2018.
From the above, we can see that Thai Beverage’s balance sheet has weakened over the year, which was a result of its acquisition activities.
Last but not least, Thai Beverage announced a final dividend of THB 0.24 per ordinary share. Including interim dividend of THB 0.15 already paid, the total dividend per share for FY2018 was THB 0.39 (giving a 53% payout ratio). This was down from THB 0.67 dividend per share paid in FY2017.
Thai Beverage’s decision to reduce its dividend per share for the year is a reasonable one, considering the lower profitability for the year. Moreover, the dividend per share of THB 0.39 is still above its dividend policy (to pay a minimum of 50% of net profit).
Nevertheless, the lower dividend would be a black mark with income investors who prefer to have stable and rising dividend payments.
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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 Lawrence Nga doesn’t own shares in any companies mentioned.