Bangkok Ranch

We recently arranged a domestic NDR for BR. Top executives’ guidance reaffirmed our positive view on BR’s growth profile over the next three years, with a U-shaped recovery. The 3Q15 was the bottom, with a flattened 4Q15 and a mild recovery in 1H16, before a strong bounce in 2H16. Apart from improving existing operations, the next growth phase will come mainly from: 1) QSR business, 2) expansion into frontier markets and 3) capacity expansion. 

Based on our ballpark estimates, we anticipate an 18% EPS CAGR during 2016-20. A soon-to-be concluded acquisition deal in China could provide scope for upside. In the interim, management reaffirmed a hike in its dividend payout policy (from the minimum of 50%). If the board approves the move, the yield could be greater than 7% a year. In all, we reiterate our conviction BUY on BR, on its 3Ds features (defensive, dividend and discount). Key discussions are summarized below. 

Earnings have bottomed—2016 set to improve with a plus …

BR’s earnings have bottomed out in 2015, and will start to recover in 2016. Its operations in Netherlands have seen improved price and volume in 4Q15, but were still hit by the effect of currency translation compared with YoY figures. However, the negative effect from EUR currency weakness will not recur in 2016 since it set a low base in 2015. Hence, we believe that its operations in Netherlands will post an improvement next year in Baht terms. Regarding Thailand operations, we think that the nascent economic recovery will boost domestic duck consumption and enhance its pricing ability with clients in 2016. 

… move into QSR plus M&A opportunity—a quick-win strategy

The firm plans to tap into Quick Service Restaurant (QSR) products, as it has done with its newly signed Au Bon Pain deal. Moreover, BR is also talking with other QSR chains, such as MINOR, OISHI and McDonalds. BR targeted the benefit from QSR business to fall into its profit and loss (P&L) statement by 2H16; and foresee that the path will top up its revenue by at least 5% in 2016. The move will also enhance the firm’s blended GM, given that QSR typically yields 30-40% versus the 20-25% under normal operations. Last but not least, management also guided that the firm plans to acquire a 30% stake in a Chinese-based duck operator—the deal is expected to be finalized in 1Q16.