Bangkok Ranch

Bangkok Ranch Plc (BR) 

 

Investment thesis

Although BR’s FY15 operation is dampened by weakening internal and external macroeconomics and global currency volatility, we believe that its share price and FY15 earnings are at their bottoms. Our view stems from an anticipated more positive outlook in FY16, underpinned by macroeconomic recovery in Thailand, EU and Japan and a gradual export volume recovery. Moreover, scope for upside will come from M&A deals, new market expansion and a potential upgrade in the dividend payout ratio for FY15-16 operations. The stock trades at a deeper discount to its peers, with an attractive dividend yield in FY16. Its expansion to high-margin business will lead it to trade with high consumer multiplies in the long-term. Our BUY rating stands.

Do not get trapped by the past

The economic slowdown, the decline in other meat prices (such as chicken), and highly volatile currencies have caused the drop in export volume and reduced bargaining power on its sales prices with clients in FY15. The weaker currencies of importing countries against the USD in FY15 have resulted in import order delays from Thai exporters. However, we believe that the above are short-term phenomena. 

FY16 to bring earnings recovery

We expect its core earnings to gradually improve in 1H16 and recover strongly in 2H16, led by recovery in export volumes to Japan and the EU, an upward adjustment of sales prices in the Netherlands and Thailand, sustained high GM and lower interest expense. We expect currencies to be less volatile in FY16, which will improve its export volume. The GDP growth in the UK, Japan and the Eurozone in FY16 will push export growth from Thailand and Netherlands. We also believe that Thai economic recovery will boost domestic duck consumption in FY16. Based on its business plan in FY16, it will focus on expanding the domestic market, mainly to rural markets and the neighboring countries with high demand for duck, such as Cambodia.

Brighter outlook in its business direction

The proactive efforts to—revamp its feed formula; implement automated systems; increase the proportion of higher-margin value-added products, Horeca and wholesale segments—will support its gross margin in FY16. BR’s expansion into new markets, its possible joint venture deal (such as in Indonesia), and capacity expansion, will be key drivers to its long-term earnings growth profile. 

Potential hike for dividend payout ratio hike

BR’s current price implies an attractive FY16 dividend yield of 5.8%, far above the CPF yield of 4.1% in FY16 and even higher than the GFPT yield of 2.8% in FY16. We believe that the company is likely to increase its dividend payout ratio to 60% or above (above its minimum 50% payout ratio policy), which will lift its dividend yield to above 6.1% in FY15 and 6.9% in FY16, which we think is relatively high. It will be ranked in the top-30 highest dividend yield stocks, we calculate.