Equity Analysis /
Thailand

Carabao Group PCL: Caught in the storm

  • Earnings forecast cut to reflect weak CLMV sales

  • Negative surprise in 1Q21 result forecast

  • Mitigation plan urgently needed

Bualuang Securities
25 April 2021

Share price will be under pressure on unfavorable 1Q21 result outlook (posting on May 14), deteriorating situations in CBG’s key export markets Cambodia and Myanmar, and consensus earnings downside risk. Valuations are not cheap at a 2021 PER of 30.0x (1-year bullish PER at 31-32x versus bearish at 26-28x). We have cut the YE21 DCF-derived target price to Bt130 to reflect earnings downward revision (from Bt138, unchanged 6.6% WACC and 2.0% terminal growth). We suggest investors ‘wait for good entry level’.

Earnings forecast cut to reflect weak CLMV sales

We have revised down core profit forecast by 9% to Bt4.1bn in 2021 (9% to Bt4.7bn in 2022) in line with sales cuts (by 8% to Bt19bn in 2021 and Bt21bn in 2022), in Figure 1. New modeled sales are priced in the worst-case scenario for exports to Cambodia (we assume 10% sales contraction in 2021 and 12% recovery in 2022 to reflect the new wave of COVID-19 outbreak in 2Q21) and Myanmar (sales plunge of 50% YoY in 2021 and flattish in 2022 dampened by coup). CLMV sales entail high sensitivity to CBG’s earnings, as they account for 40% of total sales in 2020 mainly from Cambodia (almost 30%) and Myanmar (10%). We expect consensus earnings downside risk by 6-13%.