Brokers' Call

Thai Beverage

Brokers: DBS Group Research

Call: Buy

Target Price: $ 1.07

Uncertainties surrounding slower consumption in Thailand from the mourning period after the former King's death are temporary.

While the first half of this year saw results dipping by 2 per cent year on year, the second half could turn in a better performance year on year on the back of tighter cost control.

In addition, the expectations of an excise tax increase could lead to distributors and agents stocking up, thus forecasting spurring sales in the fourth quarter of this year.

On a longer-term horizon, ThaiBev's ongoing transformation into a regional beverage player will aid in further re-rating of the counter. Its associate, Fraser & Neave (F&N), now owns 18.74 per cent in Vinamilk, and has stated an intention to increase this further.

An outright swap with TCC Assets for a higher stake in F&N is unlikely. Instead, ThaiBev may rely on F&N as its regional expansion vehicle and increase its stake in F&N only when opportune.

Potential catalysts could be margin expansion from the excise tax increase, market share gains in beer and non-alcoholic beverages, faster turnaround in non-alcoholic beverages and corporate restructuring - monetisation/partial divestment of its property associate's stake.


UOL

Brokers: DBS Group Research

Call: Buy

Target Price: $9.05

UOL announced that it will be issuing 27.3 million new UOL shares in exchange for 60 million shares in UIC held by Haw Par. This will raise its stake in UIC to 48.94 per cent from 44.71 per cent via a share swap with Haw Par. This deal among related parties of Mr Wee Cho Yaw is a paper exercise with minimal impact on UOL.

Nonetheless, eventual control of more than 50 per cent of UIC could unlock hidden value within the group and could be a catalyst to watch. The swap ratio of 2.20 UIC shares to one UOL share is based on a multiple (rounded down) between their share prices and latest net asset values.

UIC has a large pool of prime commercial properties with redevelopment and repositioning potential. Hence, gaining statutory control of more than 50 per cent of UIC would allow UOL to unlock the potential of these assets. This is a less risky and cheaper way to create shareholders' value in times of elevated land prices. However, risks include overpaying for land and sharp fall in property prices.

A version of this article appeared in the print edition of The Straits Times on July 03, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe