KTBST Recommends “BUY” CBG at ฿95/Share, Expecting a Bullish Year and Profit to Soar 97%

KTBST Recommends "BUY" CBG at ฿95/Share, Expecting a Bullish Year and Profit to Soar 97%

As of 15.30, local time in Thailand, the share price of Carabao Group Public Company Limited (CBG) was ฿75.50/share, increased ฿0.50 or 0.67%. During the session, the highest of CBG’ share was ฿76.75/share and the lowest was ฿75 with a trading value of ฿161 million.

KTB Securities (KTBST) recommended “BUY” CBG with the maintain the target price of ฿95.00/share which is pegged to 2020E PER of 38.0x (-0.25 SD below 5-yr average PER). KTBST are positive about CBG’s earnings outlook given CBG’s bullish 2H19E guidance on the back of rising domestic and overseas sales, stronger profitability with its cost-cutting program and higher capacity utilization rate at its brown glass bottle and ACM plants. CBG’s bullish guidance is in line with our forecast but exceeds the consensus forecast, which KTBST expects Bloomberg consensus to upgrade their forecast in the near term. KTBST  thus maintain our 2019E net profit forecast of ฿2 billion, which represents a growth of +73% YoY. The share price has gained considerably and outperformed the SET Index by 30% over the past three months, which KTBST believes already priced in robust 1H19 earnings growth, increased 149% YoY.

KTBST has a positive view on earnings outlook with CBG’s bullish guidance. KTBST is positive about CBG’s earnings outlook following an analyst meeting on Friday, August 16. CBG’s management remains bullish about 2H19E performance with earnings expected to grow both YoY and HoH alongside rising domestic and overseas sales and stronger profitability outlooks given cost saving from falling cost of raw materials amid higher capacity utilization rate in both brown glass bottle and ACM plants. Although 1H19 total revenue came in well below the company plan to implement aggressive marketing campaigns to penetrate domestic niche market, such as gamers, and estimates overseas sales to rise at a double-digit growth YoY given a high season in China in 3Q19E and continued growth in Cambodia, Laos, and Myanmar. As for Vietnam, CBG may provide support in terms of trade promotion with an aim to drive sales to 100 million cans.

KTBST’s target price remains unchanged at ฿95.00, which is pegged to 2020E PER of 38.0x, or -0.25 SD below 5-yr average PER. KTBST views the current multiple as an appropriate level as CBG’s earnings have entered an upcycle, while CBG has overcome the past struggles. Additionally, CBG is expected to see its 2019E earnings improving significantly following a slowdown over the past two years.

KGI securities (KGI) sees CBG’s GPM improvement of 450bps over two straight quarters continuing thanks to filing up inventory in China to boost CAPU and lower cost of raw material. However, there will be more risks; i) orders from CLMV are showing signs of slowing due to more competition in Cambodia and a change in its agent in Vietnam, ii) more marketing expense for CLMV, for China after changing strategy, and for Thailand for a new product launch. KGI roll-over our target to 2020 earnings with PE 35x and reach a new target of ฿82.50/share, from ฿75.00/share.