Carabao Group PCL Jumped 7% After Announcing A Joint Venture With Showa Denko

Witawat (Ed) Wijaranakula, Ph.D.
Thu Mar 30, 2017

Carabao Group PCL (SET:CBG), 25.01% stake owned by Sathienthum Holdings Limited and 21% stake owned by Miss Nutchamai Thanombooncharoen, Managing Director of Carabao Group as of November 3, 2016, is a Thailand-based holding company primarily engaged in the manufacture and distribution of bottled beverages through its subsidiaries. 

The company's subsidiaries include Carabao Tawandang Co Ltd, which manufactures and distributes beverages, Asia Pacific Glass Co Ltd, which manufactures and distributes glass bottles and products, and Tawandang DCM Co Ltd, which distributes beverages. Some of its major energy drink brands are Carabao Dang and Start Plus. The company distributes its products internationally through trading partners which are importers, distributors, and/or local distributors in countries around the world.

Carabao Group said on February 22 that its fourth-quarter 2016 revenues, ending December 31, were 2.86 billion baht, up 37.69% year-on-year. The revenues exceeded the consensus estimate of 2.85 billion baht from the 2 polled analysts following the company, according to Thomson Reuters. The company posted fourth-quarter 2016 diluted earnings of 0.28 baht per share, missing the 0.38 baht consensus estimate of the 2 analysts covering the company. 

For the full-year 2016, the earnings came in at 1.49 baht per share on revenues of 9.97 billion baht. The full-year earnings missed the 1.60 baht per share consensus estimate of 7 analysts, while the revenues exceeded the 9.77 billion baht consensus estimate. In its financial statement, the company said domestic sales accounted for about 67% of the total revenues, jumping 20.6% in 2016, while export sales surge 47.7% due to continuous growth in Cambodia and in part to the recovery in Afghanistan. Carabao Group also said its loss from exchange rates for the full-year 2016 jumped to 22 million baht, compared to 5 billion baht in 2015.

The stock surged 7.26% on Thursday in Bangkok after the company announced a joint venture with Japanese Showa Denko's aluminum can unit to produce about 1 billion cans per year in Chachoengsao Province, near Bangkok, starting in 2018. The joint venture, which 26% will be owned by Showa Denko and 74% by Carabao, will invest about 2.2 billion baht into the projects, according to Nikkei.

From our technical viewpoint, CBG shares have fallen from the 75 baht level to the March low of 38.50 baht per share, or about 49%, after the company reported its disappointing earnings results in February. The stock is now bumping into the upper trendline of the symmetrical triangle chart pattern, following the announcement of the can deal with Showa Denko. The deal could benefit the company in the long run, but it may still face some headwinds in the near-term if the baht continues to strengthen. 

According to Thomson Reuters, the consensus amongst 9 polled investment analysts covering CBG gave the company an Underperform rating, with the median 12-month price target of 62.50 baht per share, as of March 24. Investors may want be aware that the stock has a P/E of 39 and a low free-float, about 285 million shares, compared to 1 billion shares outstanding, meaning prices can move up or down quickly.

Disclosure: No position and no recommendation.


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