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 shared in a previous article three things you should know about Thai Beverage before you buy its shares. In this article, I want to discuss two more aspects about the company’s business.
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.
3 things to know
The three things I shared about Thai Beverage in my previous article mentioned earlier were its financial track record, its recent challenges, and its return on invested capital. I found that Thai Beverage has a patchy track record (its revenue had grown in recent years, but its profit had fallen); all its business segments, with the exception of Food, experienced weakness in the latest financial year; and it managed to generate a solid return on invested capital of 26.5% in its financial year ended 30 September 2018 (FY2018).
4th thing to know: Dividend track record
When studying a company, it is important to see if it has a history of paying a consistent or growing dividend over a long period of time.
In the case of Thai Beverage, it grew its dividend by 11.1% per year from THB 0.44 per share in 2013 to THB 0.67 per share in FY2017. But in FY2018, the company reduced its dividend to THB 0.39 per share because of a decline in profit. Clearly, the recent reduction in Thai Beverage’s dividend is undesirable. Going forward, Thai Beverage’s dividend will likely correlate to its profit (it has a policy to pay at least 50% its net profit as a dividend).
5th thing to know: Valuation
The final thing that investors should consider before investing in Thai Beverage is its valuation.
At Thai Beverage’s share price of S$0.735 currently, the company has a price-to-book (PB) ratio, price-to-earnings (PE) ratio and dividend yield of 3.6, 23.6, and 2.3%, respectively. In comparison, the selfsame valuation numbers for the Singapore market are 1.1, 11.5, and 3.49%. I’m using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
It’s clear that Thai Beverage is valued at a premium to the market because of its higher PB and PE ratios, and inferior dividend yield.
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 of growth in its financials and dividend, and it has been facing some tough challenges in FY2018. Moreover, Thai Beverage’s shares currently have valuations that are more expensive than the market. The saving grace here is that the company managed to generate a solid ROIC of 26.5% in FY2018, which is commendable.
I hope the five things I’ve covered about Thai Beverage’s business fundamentals can help you make a more informed investing decision when it comes to its shares.
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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.