Maybank Kim Eng (Maybank) foresaw Osotspa Public Company Limited (OSP)’s earnings in 1Q21 to stand around 912 million baht, rising 7% YoY, as company’s market share increased, reinforcing its strong brand. Whereas the functional drink market (vitamin C segment) continued to grow and C-Vitt’s market share recovered after a decline in 4Q20.
While sales in Myanmar have not fallen much, therefore, Maybank expected total OSP sales to stabilise YoY. Gross margin slightly declines due to maintenance shutdown of glass stoves. However, this will be offset by the Fit Fast Firm programme and a new factory in Myanmar with good margin. OSP will record a dividend received from its affiliates in 1Q21, unlike last year that recorded in 2Q20.
Extending Rao Chana project and the Co-Pay Phase 3 will be also positive toward energy drinks, which have the main sales channels in traditional retail stores. In addition, the glass stove will resume operation and OSP will release a new C-Vitt product which is a promising product category. Moreover, OSP has begun to be the main distributor of Yanhee Vitamin Water (Vitamin B), which will increase revenues from 2Q21 onwards.
Domestic sales are expected to recover well if the Covid-19 outbreak eases. The demand for energy drinks in Myanmar is still sustained by strong brand presence and management expertise due to its long presence in the market. The Myanmar glass factory should be completed in 2H21 as planned.
The Fit Fast Firm project is expected to reduce costs and expenses of at least 1 billion baht this year due to the drinking formula adjustment, the use of lightweight bottles, warehouse management and Fit Fast Firm project applied in Myanmar. With a strong financial position in net cash, OSP has high potential to invest more and be able to pay regular dividends (93-94% payout in 2019-20) with a dividend yield of 3%.
Importantly, OSP’s balance sheet is still strong as current working capital of the company is as high as 9,179.29 million baht vs. total current liabilities of 4,557.30 million baht, resulting in a current ratio at 2.01x to reflect company’s healthy liquidity.
Total liabilities was 6,526.41 million baht vs. equity attributable to owners of the parent of 19,224.10 baht, bringing D/E to 0.34x.
In conclusion, Maybank has given a “BUY” recommendation on OSP with a target price of ฿45.00/share.