We expect 2Q23F net profit to improve QoQ backed by recovery in sales both at home and abroad, but still drop YoY off a high base. Gross margin is expected to recover from bottom in 1Q23. However, we lowered 2023F and 2024F net profit on the slower sales recovery than expected and continued volatility in cost of raw materials. After adjusting down 2023F net profit we assign a new 2023 TP of Bt69/share (from Bt72) and 2024 TP is Bt79/share. We continue to rate it Neutral and note we may revisit our call after 2Q23 financial release.
2Q23F net profit to recover QoQ but drop YoY. We estimate CBG’s 2Q23F net profit at Bt407mn (-45.2% YoY but recovering 54.2% QoQ) backed by revenue of Bt4.7bn (-10.9% YoY but +13.4% QoQ). Domestic revenue for its own brand recovered QoQ along with slight improvement in energy drink market share to 22% in 2Q23 from 21% in 1Q23, while third-party revenue slipped and overseas sales improved slightly QoQ. Gross margin widened QoQ to 26.2% from 30.8% in 2Q22 and the bottom of 24.7% in 1Q23 on lower average cost of major raw materials such as aluminum and natural gas and production cost like electricity. If 2Q23F net profit comes in as forecasted, CBG’s 1H23F net profit will be Bt671mn (-52% YoY) with average gross margin of 25.5%.
Downgrade 2023F and 2024F. Although CBG regained market share to 22% in 2Q23, this is still lagging its yearend target of 23-25%. Given high competition and lower growth than expected in the domestic energy drink market, we have trimmed our 2023 revenue forecast by 1.5% to Bt20bn (+3.8% YoY), anticipating the weakest gross margin in 1Q23 with gross margin widening in 2Q23F and on. This led us to downgrade our gross margin projection for 2023F from 27.8% to 26.8%, with net profit for 2023F down 16% to Bt2bn (-11.8% YoY). 2024F revenue should go up, backed by both domestic and overseas sales; we expect the new plant in Myanmar to start up in 2024. However, we have adjusted down our gross margin projection from 30% to 28.1%, which reduces our 2024F net profit 5% to Bt2.3bn (+14.5% YoY).
Risks and concerns. Major raw material costs remain high, and although aluminum price is moving down, sugar price remains high. Competition is also intense, especially in the standard segment (Bt10/bottle). CLMV economies and policies must continue to be monitored. Another factor is policies by the new government, which is mulling increasing the minimum wage.
Tactical call Neutral with 2023TP of Bt69/share. After adjusting down 2023 net profit, we derive a new 2023 TP of Bt69/share (from Bt72/share) based on average PE of 34x. With net profit recovering in 2024F, TP will be Bt79/share. However, we suggest waiting for clear signs of recovery or greater efficiency, expected from 2H23. We keep our tactical call of Neutral.
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