Carabao Group

Carabao Group Plc (CBG) 

 

Strong net profit growth

CBG posted a strong core net profit of Bt1,291m, up 46% YoY. Although the bottom line missed our estimate by 6%, the company still showed it could pull off a very impressive feat compared to all SET-listed companies. The firm also announced an additional Bt0.54 DPS, topping up its FY15 payout to 69% and providing a full-year DPS of Bt0.89, with XD on 8 Mar.

Results highlights

For FY15, CBG’s revenue rose 4% YoY to Bt7,753m, with Bt5,477m domestically (up 2.2% YoY) and Bt2,276m in exports (up 8.9% YoY). Blended gross profit margin (GPM) also grew YoY from 33.7% to 36.9%, mainly due to cost savings from the in-house glass bottle production introduced in 4Q14. Domestic GPM went from 33.3% to 38.4% while export GPM actually dropped from 34.6% to 30.1% due to a fall in orders from high-margin countries, such as Afghanistan and Yemen, and the introduction of its carbonated drink (~17% GPM with rebate). Even so, as CBG paid back all its debt and benefited from BOI incentives, its net profit margin gained 4.8% to 16.2% in 2015, giving a core net profit of 1,291m.  

For 4Q15, revenue increased 8% YoY and 7% QoQ, with flattish domestic sales YoY and QoQ of 1,452m. Exports on the other hand expanded 39% YoY and 22% QoQ to Bt621m for 4Q15. GPM is maintained at 36.8%, while core NPM fell slightly to 14.1%, giving a 4Q15 core net profit of Bt293m, up 22% YoY, but down 11% QoQ.

Outlook

Despite tepid consumption, we continue to believe that the firm’s domestic revenue is still poised to grow during 2016 as it will expand the number of cash vans to 293 and 27 DCs. Domestic ASP and hence GPM should also continue to gain slowly as direct sales from its cash vans increases. The firm has also announced that it will start to distribute other products on top of the current Koriko seaweed snack and Carabao bottled water, providing further upside to 2016 domestic revenue. For the export market, we see a return in Middle East orders and decent growth in CLMV. The introduction of new trading products and its carbonated energy drink that will tag along with its Chelsea FC sponsorship should spur huge growth in exports.

What’s changed?

We have toned down our optimism on domestic sales slightly to 5.3% growth, giving 5,866m in 2016 domestic sales (6.7% growth, 6,119m revenue previously). Furthermore, we fine-tune our export ASPs, and thus revise down our overall 2016 revenue down 2.9% to Bt11,532m. In turn, our expectation for 2016 core net profit is cut 6% to Bt1,512m. 

Recommendation

We maintain our BUY rating on CBG. However, as a result of our 2016 earnings cut, we revise our target price down to Bt42, pegged to a PEG of 0.9, three years CAGR at 31.7%, and an implied PER of 28.5x 2016 with EPS of 1.51. We believe that its strong financials and solid earnings growth during these stagnant times truly deserves a valuation premium over its beverage peers.