Maybank Kim Eng has given a “BUY” recommendation on Berli Jucker Public Company Limited (BJC) with a target price at ฿46.00/share, expecting earnings in 4Q20 to hit a year’s peak driven by the stimulus package and entering the high season.
Maybank estimated normalised profit to rebound 29% QoQ from a low base during lockdown. However, earnings are expected to drop 41% YoY to THB1.04b, as BigC’s SSSG is likely to remain negative of -16% (vs -17% in 2Q20 and -4.9% in 3Q19). Packaging sales tend to slow while sales of consumer products increase.
As a result, BJC’s total sales are projected to drop 8% YoY while gross margins falling 31 bps YoY to 18.8%. Costs & employee expenses are likely to drop by THB200m after the reorganisation in 2Q20. BJC may record additional compensation of about THB30-40m in 3Q20.
Maybank expected 4Q20 profit to be the highest of the year due to the high season. BJC will also benefit from the consumption stimulus package, adding more cash flow in the economy through the 50/50 project. Increasing the cost of living in the government welfare card and Shop Dee Me Kuen should lead to the reduction of BigC’s SSSG negative and support consumer products sales growth.
The packaging, glass bottle and can businesses are expected to see more sales from new customers with increased orders such as alcoholic beverages and RTD coffee that has changed packaging from iron cans to aluminum cans.
Packaging orders returned to normal after a slowdown during the lockdown. The products have been produced for new customers for a while, resulting in higher production efficiency and a positive result from mass production, leading to higher profit margins.
BigCs SSSG should recover from the low base. Rental income is forecast to improve from lower rental discounts while the occupancy rate is higher than 90%. BJCs employee expenses will be reduced by THB1b/year after the reorganisation in 2020.
Nevertheless, the second wave of the COVID-19 epidemic, rising raw material costs, customers delaying orders remained as risks to BJC’s upside.