KTB Securities (Thailand) (KTBST) has given a “BUY” recommendation on Carabao Group Public Company Limited (CBG) at a target price of ฿181.00/share on brighter earnings outlook in 4Q20-2021E.
As CBG held an analyst meeting yesterday (November 23), KTBST was increasingly positive about the company’s guidance.
1. CBG sets 2021 revenue growth target of 20%. Overseas sales are forecasted to grow +25% with CLMV sales likely to increase further following an extension of the distribution network in Myanmar major markets are Yangon, Mandalay, and Mawlamyine and in Vietnam.
Domestic sales would increase +20% on the back of new products and rising sales of Wood C+Lock, which are forecasted to reach 100mn bottles in 2021E compared to 50-60mn in 2020E. ICUK is expected to perform better with losses likely to narrow to GBP4.0mn from GBP4.5mn in 2020E.
2. Gross profit margin has been forecasted to widen significantly in 2021E as 1) a COD of the packaging plant APM in December is estimated to boost CBGs gross profit margin by 1-1.5 ppts in expectation of cost saving by Bt200mn per year, and fuel cost saving by Bt15.0mn per year after its solar rooftop has been in operation, and 2) a potential change in sugar content excise tax in October 2021 would prompt CBG to reduce sugar content to lower its excise tax expense.
3. CBG expects to recognize revenue quickly from the business with its JV, as the company is able to deliver goods to its warehouse directly after Myanmar’s government has removed the red tape of goods transiting across borders.
4. Sponsorship expense may reduce to Bt50.0mn in 4Q20, compared to Bt95.0mn recorded in 3Q20.
5. The company will benefit from a tax shield of Bt42.0mn given the government’s tax privileges for new machinery investment, based on CBGs CAPEX on capacity expansion of Bt700mn. The company has received tax deduction privileges of 6% for five years.
KTBST has raised its 2020-22E net profit forecast by 5-11% to reflect a brighter earnings outlook in the long term.
In 2020E, KTBST forecasted net profit to grow significantly +49% to Bt3.77bn as 1) total revenue is estimated to increase +18% with i) sales of domestic own branded to rise +3% in expectation of Woody C+Lock revenue of Bt600mn, although the country’s energy drink market has been forecasted to shrink -7%. ii) revenue from the distribution business for 3rd parties to jump +67% to a record high of Bt2.3bn (13% of total revenue), and iii) overseas sales to grow +21%, particularly from CLMV rising +23% (41% of the total).
2) Gross profit margin would widen further to 41.7% from 38.9% in 2019 in expectation of economies of scale in ACM and APG, lower cost of raw material and fuel, and 3) ICUK is expected to perform better with losses likely to narrow down.
In 2021E, net profit will likely continue to grow a further +28% to Bt4.76bn as 1) domestic sales are estimated to increase +18% with energy drinks to surge +7% in expectation of higher employment rate among the blue collar group, and with Woody C+Lock to jump +62% to Bt970mn.
2) Overseas sales would rise further +21% on the back of the extension of distribution network; 3) gross profit margin would widen further given economies of scale and higher capacity utilization in ACM, APG, and APM, which is estimated to save cost by Bt200mn per year.
KTBST raised its target price to Bt181.00 from Bt170.00 but maintained the 2021E PER multiples at 38.0x, which is its 5-yr average level. We forecast CBGs earnings to ride an uptrend with EPS to grow at 32% CAGR in 2019-22E.
Furthermore, KTBST saw upside to our forecast if CBG reduces sugar content in its beverage to reduce sugar tax expense. Additionally, overseas and Woody C+Lock sales are likely to beat our estimates.