Analyst Expects Limited Impact from COVID-19 for RBF, Recomm “BUY” at a TP of ฿5.55

KTB Securities (Thailand) (KTBST) has maintained a “BUY” recommendation on R&B Food Supply Public Company Limited (RBF) with a target price at ฿5.55/share as the company’s net profit in 2020 is expected to reach 373 million baht (+6% YoY) given a limited impact from the COVID-19 outbreak.

 

KTBST forecasts 1Q20E net profit to grow +8% YoY but to fall -5% QoQ to Bt95mn. A growth YoY would be driven by higher orders of flavors and tastes along with an expanded customer base – RBF’s management said orders remained strong despite the COVID-19 outbreak. A decline QoQ would be due to subdued hotel business given a significant drop in tourists.

The core revenue (flavors and tastes) is estimated to increase +10% YoY, +2% QoQ with gross profit margin likely to remain flat YoY, QoQ at 38%, while revenue from the hotel business would drop -60% YoY, -56% QoQ to Bt11mn. Revenue from both flavoring & coloring and flour & sauce are expected to remain flat at 38% and 35% of total revenue.

KTBST forecasts 2020E net profit to grow +6% to Bt373mn given a limited impact from the COVID-19 outbreak in the core business. According to KTBST’s inquiries, RBF maintains 2020E sales growth target of 10-12% in the core business as orders have been at a normal level QTD despite the COVID-19 lockdown.

If the COVID-19 outbreak will extend to a certain extent, KTBST sees a limited downside to our 2020E net profit forecast, which has incorporated a loss of Bt115mn in the hotel business, assuming revenue will drop -50% YoY, or a loss of revenue for two quarters. In 2019, revenue from the hotel business totaled Bt88mn (3% of the total revenue), which generated loss of Bt70mn.

 

In this regard, KTBST has maintained its target price at Bt5.55 based on the DCF method, assuming WACC of 10.0% and terminal growth of 3.0%. Key downside risk is the COVID-19 outbreak, which has taken a toll on the hotel business.