Analyst Expects CBG’s 2020E Earnings to Grow Further, Recomm. BUY at a TP of ฿118

KTB Securities (Thailand) (KTBST) has maintained the recommendation of Carabao Group Public Company Limited (CBG) to “BUY” with a target price at ฿118.00/share.

 

1Q20E net profit to grow further YoY

KTB forecasts 1Q20E net profit of CBG to skyrocket +83% YoY but to decline -5% QoQ to ฿767 million, as 1) total revenue is expected to increase +13% YoY but to fall -4% QoQ to ฿3.8 billion in expectation of higher overseas sales, which are estimated to grow +18% YoY, +4% QoQ, and the energy drink industry sales growth of 0.6%, and 2) gross profit margin would widen YoY, QoQ to 41.9% on higher capacity utilization and a lower cost of raw materials. KTB maintains the 2020E net profit forecast of ฿3.11 billion, which indicates a growth of +24% YoY.

 

CBG’s share price dropped 16% in three months due to negative sentiment from the COVID-19 outbreak. KTB views a decrease in the share price as a buying opportunity in expectation of earnings play, while CBG’s 2020E earnings are expected to grow further. Additionally, the stock currently trades at an undemanding PER of 24.8x, which is well below an average level of 39.3x, and PEG of 1.5x.

 

Event: 1Q20E earnings preview

1Q20E net profit to grow further YoY. KTB forecasts 1Q20E net profit to skyrocket +83% YoY but to decline -5% QoQ to ฿767 million on the back of higher domestic and overseas sales, and stronger profitability. Total revenue would grow +13% YoY but to soften -4% QoQ to ฿3.8 billion as 1) overseas sales would increase +18% YoY, +4% QoQ with CLMV sales likely to hit a fresh record high given rising exports to Myanmar and Cambodia, and 2) KTB expects the domestic energy drink market to edge up +0.6% YoY with Carabao Daeng’s market share of 20.3%. Gross profit margin would widen to 41.9% from 35.4% in 1Q19 and 40.9% in 4Q19 on the back of higher capacity utilization in both ACM and APG, and a lower cost of aluminum coil, cullet, and fuel.

 

Maintain 2020E net profit forecast. KTB forecasts 2020E net profit to grow +24% to ฿3.11 billion, as 1) total revenue would increase +6% on the back of domestic and overseas sales growth of +2% and +10%; 2) gross profit margin would widen to 42.2% from 38.9% in 2019 on the back of economies of scale given a higher capacity utilization in ACM and APG amid a lower cost of raw materials and fuel, and 3) losses from ICUK are expected to narrow down.

 

Valuation/Catalyst/Risk

CBG’s target price is ฿118.00/share, which is pegged to 2020E PER of 38x. CBG’s earnings has been on an upcycle from 2019, while the stock’s valuation remains attractive, trading at 2020E PER of 24.8x and PEG of 1.5x, which are below its peers of 28.0x and 2.2x. Key downside risk is a slower-than-expected consumption and the second wave of COVID-19 outbreak.