The share price of Carabao Group Public Company Limited (SET: CBG) and Osotspa Public Company Limited (SET: OSP) has been on a downtrend for more than half a year due to the weakened sales, especially in CLMV, and higher freight cost.
CBG’s earnings in the third quarter of 2021 plunged by 38% to 601 million baht, compared to the same period in 2020. The decrease was due to lower overseas sales, especially sales to CLMV resulting from the lockdown measures from the Covid-19 pandemic. As a result, the average monthly sales volume and gross profit margin of CBG decreased.
Meanwhile, OSP reported a 37.2% decline in its 3Q21 bottomline at 580 million baht. The decrease in net profit was due to the weakened sales, global surge in freight costs, and adverse foreign exchange impact.
Both CBG and OSP experienced the same difficulty in 2021, which is a drop in sales revenue during the intense lockdown in Thailand as well as their partners’ country.
The decline in share prices reflect the poor 3Q21 results and the upcoming earnings report for the 4Q21 financial statement that should remain lower than the pre-Covid level. CBG has dropped 18.15% in three months and 30% in six months. OSP is better than OSP in terms of the downturn, given a decline of 1.53% in three months and 8.51% in six months. The Relative Strength Index (RSI) also indicates that both securities are in an oversold condition, especially CBG that has been among top oversold securities in SET100 for months. The RSI of OSP is 35 and CBG is 18.
FSS International Investment Advisory (FSSIA) stated in its analysis that it hosted the Financial Investment Conference for institutional investors on 25 Jan-22 with three of CBG’s top executives in attendance. 2022 should be the year of recovery after CBG’s 2021 earnings were hit by regional lockdown measures as well as the political unrest in Myanmar, according to the management. Sales growth of energy drink is expected to grow 20-25% y-y in Thailand and overseas markets, driven by 1) the recovery of domestic energy drink sales; 2) a solid recovery in the Cambodia market to the pre-Covid level at THB4.7-4.8b; 3) solid growth in the China market (+50%) y-y in 2022 (vs 2021E of cTHB700m); and 4) third-party distribution sales should continue to deliver solid growth at 50% y-y in 2022 (vs 2021E of above 50% y-y) supported by new product launches. Overall, CBG expects a U-Shaped recovery starting from 1Q22 with a solid recovery in 4Q22.
FSSIA concluded that the near-term sentiment could be pressured by the slower-than-expected recovery due to concerns over the Omicron outbreak and the high raw material cost environment. However, CBG’s current share price should offer a limited downside risk as it is trading at 29x 2022E P/E, or close to -1 SD of its 5-year average. A near-term catalyst could be CBD infused products, the first of which CBG plans to launch by 1Q22. FSSIA maintained its “BUY” rating with a target price at THB158.00 per share.
Capital Nomura Securities (CNS) maintained its “BUY” rating on OSP with a target price at THB42.00 per share. The securities company noted that even though the operation in 1H22F would be highly challenged by rising material costs, OSP has the ability to improve its production efficiency. The latest Fast Forward 10X that aims to cut 5 billion baht of costs within 5-7 years, coupled with cost management, lower impact from Covid-19 and higher market share in energy drinks and functional drinks leads to the conclusion of CNS in expectation that OSP will be one of the first companies in the sector to see a recovery in profit margin. The upcoming new product related to hemp will be shelved in 1H22F, while the share price is trading at 26x of PER 22F, which is relatively low, with an average of -1.75 SD. CNS noted that it sees a buy opportunity for accumulation.