Thai Beverage Public Company Ltd (SGX: Y92), or ThaiBev, is one of the few liquor companies listed on the Singapore Exchange. The group is a leading beverage company in Southeast Asia and the largest in Thailand. ThaiBev’s business consists of four segments: spirits (hard liquor), beer, non-alcoholic beverages (NAB), and food.
The group’s share price has soared 38% year to date, to S$0.84 from S$0.61, and that made me curious to find out more about the company. Is it still cheap, or has this spike in the share price made it too expensive for investors’ comfort? Let’s take a look at several aspects of ThaiBev’s business to determine if it may still be investment-worthy.
Strong growth in volumes and revenue
The spirits and beer divisions saw increases in sales volume, with spirits volume rising 9.6% year on year to 363 million litres, and beer volume rising a sharp 73% year on year to 1,395 million litres. The beer business has been contributing strongly to volume, but it is a division with low net margins of just 2.3% (for H1 2019). Spirits’ volume growth has also translated into a 7.7% year-on-year improvement in net profit, which demonstrates some pricing pressure. The NAB division saw volume growing 3.4% year on year but continued to book a net loss.
The spirits division dominates the group’s profits
It is clear that the spirits division is the one driving the group’s business, as it takes up the bulk of net profits. Spirits contribute 44% to total revenue but make up 88.3% of net profit, implying that it is the most lucrative division for ThaiBev.
A quick computation of H1 2019’s business division numbers shows this to be true: Spirits has the highest net profit margin of the four divisions, at 17.3%. Though the beer division’s sales volume was almost 4 times that of the spirits division, the net profit was just THB 1.5 billion compared with the net profit of THB 10.8 billion for spirits. The beer division commands a net margin of just 2.3%, as mentioned above.
Strong free cash flow, reasonable valuation
At the group level, ThaiBev continues to generate strong free cash flow and is also trading at a reasonable valuation of 18 times price-to-earnings. Its historical dividend yield is around 2%, and investors who believe in the strength of the company’s liquor brands should find that the stock is not priced expensively with respect to the group’s prospects, as ThaiBev is one of the largest liquor companies with a dominant market share.
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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 Royston Yang does not own shares in any of the companies mentioned.