Compiled by Lynette Tan
THAI BEVERAGE | BUY
TARGET PRICE: $0.87
NOV 27 CLOSE: $0.63
DBS Group Research, Nov 27
We maintain our buy recommendation on ThaiBev with a revised target price of $0.87.
Despite weak FY2018 results, we expect that the worst operational performance is behind us, and the group should return to a growth trajectory in FY2019 forecasts.
We believe the approximately 28 per cent year-to-date decline in share price has priced in the negative operating performance and the weak domestic consumption.
We advocate looking beyond these issues and positioning for an eventual recovery.
In addition, ThaiBev's gearing should progressively taper down over the forecast years given its stable and strong operating cashflow.
Looking forward to Q1 2019 (quarter to Dec 2018), we expect earnings to return to growth.
Potential catalysts include demand pick up in Thailand, realisation of benefits from the acquisition of Saigon Beer Alcohol Beverage Joint Stock Company (Sabeco), market share gains in beer and non-alcoholic beverages, a faster turnaround in non-alcoholic beverages, and monetisation or partial divestment of its stake in Frasers Property Limited.
We trimmed our earnings forecasts by 16 per cent and 12 per cent for FY2019 and FY2020 forecasts, respectively, on the back of lower sales volume and margins from spirits and beer.
Notwithstanding our earnings revision, we are projecting earnings growth of 10 per cent and 15 per cent for FY2019 and FY2020 forecasts, respectively.
FU YU CORP | BUY
TARGET PRICE: $0.27
NOV 27 CLOSE: $0.188
UOB Kay Hian, Nov 27
Fu Yu offers a high and sustainable dividend yield of 8.5 per cent for 2018, which we expect to increase to 9 per cent in 2019, from improving net profit, free cash flow and strong net cash position of $75 million or $0.10 per share.
In Q2 2018, Fu Yu raised its interim dividend for the first time in three years; we expect further increases.
Fu Yu has also diversified to a more stable customer base (products with longer life cycles); home consumer products, medical products, and automotive parts.
Fu Yu is also optimising its business - the full-year earnings contribution and savings from regulatory compliance costs are expected to be around $1 million; terminating a loss-making joint venture of $0.7 million; turning around two loss-making plants in China; and amalgamating two subsidiaries in Singapore in Q1 2017 to drive economies of scale and deliver cost synergies of around $1 million.
Finally, Fu Yu could be a takeover target given attractive valuation, geographically diversified plants and sought after customers, available capacity, and the savings of three co-founders' remuneration.
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