KGI Expects Higher 4Q20 Earnings from TACC, Giving “OP” Rating with Bt8.00 Target Price

KGI Securities has given an “Outperform” rating on T.A.C. Consumer Public Company Limited (TACC) with a target price at ฿8.00/share, expecting an increase of 15% YoY and 10% QoQ in 4Q20 earnings.

 

KGI expected TACC to report a 4Q20F net profit of Bt51mn (+15.0% YoY, +10.0% QoQ). If the result is in line with our forecast, 4Q20F and FY20F earnings would account for 27.1% and 99.5% of our full-year estimate of Bt189mn.

The strong profitability would be supported by i) increases in high margin products (All Cafe sales with contribution >70% of total), ii) continued efficient cost management (i.e. lower raw material cost, good logistic costs and continued expansion of 7-Eleven stores), and iii) good SG&A expense control. All-in, KGI expected that TACC could deliver a strong earnings performance driven by margin enhancement through its good product mix and effective cost strategies.

 

Despite the severely negative impact from the COVID-19 outbreak in 2Q20, TACC continued to show record high earnings in 2Q-3Q20, including 4Q20F. This reflected the company’s ability to handle its business strategy very well, while most companies were negatively affected by the outbreak over the past two quarters.

Meanwhile, KGI still foresaw potential growth for the company from both B2B and B2C segments, particularly the bottoming out of B2C in 2020. However, B2C revenue accounted for only 5% of total revenue in 9M20, down from 10-15% in the past, due to the COVID-19 outbreak. KGI expected that the outlook for B2C business will improve from potential improvement in economic activity YoY, particularly in 2H21.

 

In addition, KGI maintained its earnings projections at net profits of Bt189mn (+16.8% YoY) in 2020F and Bt222mn (+17.2% YoY) in 2021F. TACCs growth will be driven by i) continued growth from existing outlets, ii) store expansion by 7-Eleven to 12.4K stores in 2020 and 13.1K stores in 2021, iii) new product launches, and iv) sustainable margin improvement. Also, its ROE was good at 24.5% in 2019 and should rise to an average of 26.3% during FY20-21F.

Thus, KGI reiterated “Outperform” rating with a 2021 target price of Bt8.00 (based on 21.8x PE FY21F, translating to 1.26x PEG).