Brokers' Call

THAI BEVERAGE

Broker: OCBC Investment Research

Call: Hold

Target Price: $1.01

With Vietnam's government proposing to sell off Sabeco (Saigon Beer, Alcohol, Beverage Corporation) and Habeco (Hanoi Alcohol Beer & Beverages Corp) for an estimated total of US$2.2 billion (S$3 billion), various media outlets have revealed that Thai Beverage (Thai Bev) is one of several bidders for a stake in Vietnam's largest brewers.

Based on Euromonitor forecasts, Vietnam's beer volume is expected to grow at a compound annual growth rate of 6 per cent over 2015-2020. Against this backdrop, there are a few notable foreign brewers that have presence in Vietnam.

Thai Bev is not new to Vietnam and reportedly has plans to distribute and market Chang beer in the market. In addition, Frasers & Neave has an 11 per cent stake in Vinamilk.

All considered, waiting out on this development is preferable.


SHENG SIONG GROUP

Broker: DBS Group Research

Call: Buy

Target Price: $1.18

Sheng Siong is a prefered stock for its earnings growth traction, efficient operations, strong return on earnings and net-cash balance sheet. Positivity on gross margins has increased as the run rate of 26 per cent in the second quarter will be sustainable.

More can be done for gross margin to expand through direct sourcing, house brands and a higher mix of fresh food. There is room to increase direct sourcing of fresh products, especially vegetables from farms regionally.

Cutting off middlemen would contribute to gross margins. Higher-margin house brands contribute below 10 per cent of turnover and improving the firm's house-brand mix will support margin improvement. Finally, fresh-food mix can increase due to supermarkets' displacement of wet markets.

The earnings for financial years 2016-2017 are forecast to increase by 7-8 per cent, led by a higher gross margin assumption of 26 per cent.

The new Junction 9 store has started operations last month, while the Kunming store, scheduled to open in the second half of the year, will now do so in the first half of 2017.

A version of this article appeared in the print edition of The Straits Times on October 03, 2016, with the headline 'Brokers' Call'. Print Edition | Subscribe