Introduction to Carabao Group

Carabao Group (CBG), a prominent player in the energy drink and beverage industry, operates a vertically integrated business model encompassing production, packaging, marketing, and distribution. With a stronghold in both domestic and international markets, CBG is widely recognized for being the title sponsor of the English Football League Cup, known as the Carabao Cup, from the 2017/18 to 2026/27 seasons. This report delves into the company’s performance, market dynamics, ESG initiatives, and future outlook as analyzed by Maybank Securities (Thailand) PCL.

Recommendation and Target Price

Maybank Securities (Thailand) PCL has upgraded Carabao Group from “HOLD” to “BUY” with a 12-month price target of THB 91. This represents a potential upside of 15% from the current share price of THB 79.25. The upgrade reflects CBG’s projected market share growth, strong domestic and international sales performance, and strategic initiatives to mitigate regulatory risks.

Market Share and Domestic Growth

CBG’s domestic energy drink sales are expected to grow by 7% in FY25, outpacing the anticipated 2.5% growth of the overall Thai energy drink market as forecasted by Euromonitor. This growth is attributed to its competitive pricing strategy of THB 10 per bottle, which resonates with consumers amid a weak economic outlook. The company’s market share is projected to increase from 26.0% in 2024 to 27.5% in 2025, supported by its ambitious target of achieving a 29% market share.

International Expansion and New Plants

CBG’s international sales are forecasted to grow by 8% in FY25, fueled by recovering demand in CLMV (Cambodia, Laos, Myanmar, Vietnam) markets. A new production facility in Myanmar, expected to commence commercial operations in Q2 2025, could further boost sales. CBG aims to restore its CLMV market sales to the pre-political instability level of THB 6.8 billion, significantly higher than the projected THB 5.4 billion and THB 5.7 billion for FY25 and FY26, respectively.

Regulatory Risks: Sugar Tax

CBG faces a regulatory challenge with the planned increase in the sugar tax from THB 0.3/liter to THB 1/liter in April 2025. If the company maintains its current sugar content levels, it could experience a 3% downside to its FY25 EPS. However, CBG is actively testing new formulations with alternative sweeteners to mitigate this risk. Past attempts in 2021 to adjust sugar content met with consumer resistance, but advancements in sweetener technology may yield better results this time.

Financial Performance and Projections

CBG’s revenue is expected to grow by 10% in FY25, reaching THB 22.93 billion, driven by both domestic and international sales. EBITDA is projected to increase by 7.8% to THB 4.69 billion, while core net profit is forecasted to grow by 11.1% to THB 3.14 billion. The company’s financial health remains robust, with net gearing expected to decline to 13.0% in FY25, well below its covenant of 2.5x. Free cash flow is anticipated to rise to THB 1.43 billion in FY25, despite planned capital expenditures of THB 1 billion.

ESG Initiatives

Environmental Efforts

CBG has aligned its climate strategy with the TCFD framework, focusing on reducing greenhouse gas emissions and enhancing sustainability. The company uses the 3Rs principle (Reduce, Reuse, Recycle) in its packaging operations and has implemented solar rooftop projects, generating over 7,176 MWh of renewable energy and reducing CO2 emissions by 3,559 tons annually. Additionally, CBG reuses wastewater in its operations, saving 13,114 cubic meters of water annually.

Social and Governance Practices

CBG emphasizes fair labor practices, offering safe working conditions and fair wages. Its governance framework ensures transparency, compliance with regulations, and ethical supply chain management. The company has a 13-member board, with 46% independent directors and 31% female representation, reflecting its commitment to diversity and ethical governance.

Key Risks and Challenges

CBG faces potential risks, including rising raw material and energy costs, regulatory changes, and political instability in key markets like Myanmar. The competitive energy drink market also poses the risk of price wars, which could impact margins.

Conclusion

Carabao Group’s strategic initiatives, coupled with its robust financial performance and ESG commitments, position it for sustained growth in the coming years. The company’s focus on market share expansion, international growth, and regulatory risk mitigation underscores its resilience and adaptability. With a “BUY” recommendation and a target price of THB 91, Carabao Group remains a compelling investment opportunity in the beverage sector.