Asian Brewer Named as World's Cheapest Alcohol Stock at Goldman

(Bloomberg) -- Thai Beverage Pcl has earned the title of the world’s “cheapest alcohol name” at Goldman Sachs, as the Bangkok-based brewer is now the worst performer in its consumer stocks coverage.

And analysts led by June Zhu say a turnaround in its operations next year will give the stock a nice lift.

Since losing S$6.9 billion ($5 billion) this year, ThaiBev now trades at 15.3 times of future earnings -- below its 10-year average -- while the MSCI World Beverages Index trades at 19.9 times, according to data compiled by Bloomberg.

"The stock has reached its bottom, both on earnings and valuation," June Zhu and Manik Mahajan, analysts at Goldman Sachs (Singapore) Pte wrote in a report last week. "FY19 will mark the start of the turnaround" due to forecast improvements in farm incomes, wages and election spending.

Shares of ThaiBev closed 4 percent higher, the biggest gain in almost two months on higher than the 3-month average volume.

The company’s management is anticipating that higher agricultural income in Thailand and a strategy to replace short-term debt with long-term loans will improve finances next year.

Sanford C. Bernstein analysts Euan McLeish and Yan Li upgraded the stock to market-perform from underperform on Friday, saying the stock’s valuation "now fairly reflects the weak domestic outlook and the lack of upside from the recent acquisitions."

Goldman’s Zhu, who last week reiterated her buy rating on the stock from July 30, says investors should monitor the company’s progress on sales volume, revenue growth at its Vietnamese unit, cost controls and debt management. Even so, she cut the target price to S$0.74 from S$0.94 last week, citing a lack of visibility in the next six months.

Of the 16 analysts covering the stock as tracked by Bloomberg, only two brokerages have sell-equivalent ratings. Phillip Capital, which has a reduce rating, said on Aug. 17 that it’s still worried that weak disposable income might continue to weigh on prospects. JPMorgan’s Kae Pornpunnarath has an underweight rating.

©2018 Bloomberg L.P.