KTB Securities (Thailand) (KTBST) has given a “BUY” recommendation on Berli Jucker (BJC) and upgraded a target price to ฿43.00/share as 4Q20E net profit to improve QoQ on rising spending power and the shopping season.
KTBST expected BJC’s 4Q20E net profit to improve QoQ in light of improvement in both the domestic packaging and the modern retail business given rising spending power and the government’s spending stimulus package.
In the packaging business (14% of total sales), revenue is estimated to improve QoQ given new domestic canned coffee and beer customers and improvement in the Vietnam-based packaging business in the aftermath of a second wave of the COVID-19 outbreak in 3Q20.
Gross profit margin would also improve on the back of an increase in production effectiveness and a cost-saving program. In the glass packaging section, revenue is expected to grow QoQ given growing demand from vitamin and alcohol customers. Gross profit margin, however, is likely to narrow slightly due to a scheduled kiln shutdown for two months.
In the modern retail business (67% of total sales), same-store sales would decline at a slower pace of 14-16% from a negative 17.8% in 3Q21, as sales of fashion items, which generally provides a relatively higher profit margin compared to other products, are expected to increase. Gross profit margin is thus estimated to increase to 18.9% compared to 18.7% in 9M20.
Downgrade the 2020E earnings forecast, 2021E net profit to rebound +19%. KTBST cut its 2020E net profit forecast slightly by 4% to Bt4.1bn, which represents a drop of -44%, as the Analyst revised down same-store sales estimate to a deeper decline of -16% from -12% earlier.
In 2021E, KTBST forecasted net profit of BJC to rebound strongly +19% to Bt4.9bn. KTBST believed a change in product mix strategy should bring it to fruition. In the meantime, a threat of disease outbreak should provide support to the medical supply business, while the government’s tourism stimulus package should bode well for the packaging business.