Over the last 12 months, Thai Beverage Public Company Limited‘s (SGX: Y92) share price has fallen by 21% to S$0.735 currently. The decline may cause some investors to be interested in buying shares of the company. If you happen to be in this group, I will share in this article three things you should know about Thai Beverage before you buy its shares.
Before I dive into it, here’s a quick description of Thai Beverage’s business for context later: The company operates predominantly in Thailand, and has four different business segments, namely, Spirits, Beer, Food, and Non-Alcoholic Beverages; it’s worth noting too that Thai Beverage changed its financial year end from 31 December to 30 September in 2016.
1st thing to know: Thai Beverage’s financial track record
One important aspect about a company that we as investors should focus on when assessing its investment merits is how well its underlying business has performed over time. A track record of a stable or growing business will provide assurance that the company has a high likelihood of sustaining its business performance going forward.
In the case of Thai Beverage, its business has a patchy track record. The alcohol juggernaut’s revenue had increased by 9.7% per year from THB 162.1 billion in 2014 to THB 229.7 billion in FY2018 (financial year ended 30 September 2018). But, its net profit attributable to shareholders fell by 15% from THB 21.7 billion to THB 18.5 billion over the same period.
2nd thing to know: Recent challenges
In FY2018, Thai Beverage faced some challenges that resulted in weaker profitability. For the year, the company reported a significant 20.9% jump in revenue.
Yet, its EBITDA (earnings before interest, taxes, depreciation, and amortisation) fell by 19.8% to THB 36.2 billion, resulting in its net profit attributable to shareholders sinking by 46.3% to THB 18.5 billion. One-off gains from the revaluation of financial assets in FY2017 was a big reason for Thai Beverage’s big fall in profit in FY2018, but even after stripping out one-off gains and expenses, the company’s net profit attributable to shareholders in FY2018 would still be 19.1% lower compared to FY2017. The lower attributable net profit can be traced to weakness across all segments with the exception of Food.
3rd thing to know: Return on invested capital
One of the most important questions that we as investors should answer before investing in any company is whether it has a good business. There is no quick answer to the question, but one way to gain useful perspective is to look at my favorite ratio, the return on invested capital (ROIC). The simple idea behind the ROIC is that high-quality businesses tend to have high ROICs while the reverse is true – a low ROIC is often associated with a low-quality business.
In the case of Thai Beverage, I recently calculated its ROIC to be 26.5% for FY2018, which is above the average of the ROICs of many other companies I have studied in the past.
A Foolish conclusion
It’s never easy when it comes to making an investment decision since we must look into many different areas of a company. In the case of Thai Beverage, it has a patchy track record and has been facing some tough challenges in FY2018. But even so, the company managed to generate a solid ROIC of 26.5% during the year. In a future article to be published shortly, I will cover two more aspects about the company that investors should know before they buy its shares. [Editor’s note: An article featuring two more things about Thai Beverage’s business that investors should know has been published. It can be found here.]
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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.