• Maintain BUY and THB28.75 TP (DCF), 42% upside and c.4% yield. Osotspa should see strong 1Q24 core profit growth of 61% YoY (+30% QoQ) on favourable sales and profit margin environment at its operations in Thailand and Myanmar. We believe 2Q24 net profit will continue expanding YoY. OSP’s 23x FY24F P/E (c.-2SD) still looks undemanding.

• Market share gains. OSP’s market share for domestic energy drinks is expected to improve by 0.5ppts QoQ to 46.4% in 1Q24 vs a 47.9% by 4Q24 target. This is to be mainly driven by Lipovitan-D and the THB10 M-150 while maintaining its share for the THB12 M-150. Its domestic functional beverages market share may also increase by 0.3ppts QoQ to 42.9% this quarter on improving sales for C-Vitt Vitamin C drinks and Peptein. OSP’s international business will likely get stronger, in our view, due to operations in Myanmar (c.13% of total sales) gaining advantages from having production facilities for Shark energy drinks internally, as well as the high season there.

• 1Q24 preview. We expect OSP to post a THB768m net profit in 1Q24, a slight 1% YoY drop (+78% QoQ). With the absence of a THB300m dividend from Uni.Charm (Thailand) (attained in 1Q23), core profit would expand 61% YoY (+30% QoQ) this quarter. Both higher sales and profit margins YoY and QoQ could be the earnings growth drivers. Total sales may expand 13% YoY (+13% QoQ) to THB7.38bn from beverage sales hikes in Thailand, Myanmar, and Laos. Lower natural gas prices, rising glass production efficiencies, and better utilisation at its beverage filling plant in Myanmar may keep overall GPMs enhanced to 36.3% (+2.9ppts YoY, +0.8ppts QoQ). The opex-to-sales ratio may decline 1.3ppts YoY (-0.1ppts QoQ) to 24.7% on manageable administrative costs – this is amidst more selling expenses for the modern trade distribution channel.

• 2Q24F outlook. OSP’s 2Q24 core profit may still expand YoY due to increased outdoor activities and higher temperatures this summer that can boost beverage sales, and benefits from a strategy to deliver procurement savings for raw materials and packaging. We also expect some positives for OSP if the Government’s digital wallet scheme is applied later this year.

• Maintain forecasts. We expect OSP’s core profit to expand 9% in 2024 and 2025. Key earnings drivers for 2024F: i) 6% topline growth (based on expected improvements in beverage sales locally and abroad), ii) smaller production costs should enhance GPM by 0.2ppts, and iii) opex control efforts that may help lower the opex-to-sales ratio by 0.8ppts.

• Valuations. We applied a 0% ESG premium/discount to OSP’s intrinsic value to derive our DCF TP. The stock is still at an undemanding 23x FY24F P/E (c.-2SD from the mean). OSP will pay 2H23 DPS of THB0.45/share (2.2 % yield), with ex-dividend and payment dates of 2 May and 23 May.

Source: RHB Research - 24 Apr 2024