OSP – Preview 3Q24: Core up YoY but down QoQ

We expect OSP to report 3Q24 core profit of Bt616mn (+96% YoY but -33% QoQ) pressured by lower revenue YoY and QoQ from seasonality and the widespread flooding. In 3Q24F, OSP will book impairment loss of ~Bt1bn from divestment in Myanmar, putting net earnings into a loss of Bt384mn. We believe core profit will recover both YoY and QoQ in 4Q24 from stronger sales, with 2024F core earnings growth a high 45.7%. We stay Outperform with a 2025 target price of Bt29/share based on-1SD PE 5-year of 28x.

Energy drink market share shrank in 3Q24. Although the value of the energy drink market has grown 3-4% YTD, OSP reported a drop in 3Q24 energy drink market share to 45.3% from 46.4% in 2Q24, giving a YTD market share of 46%, below its 2024 year-end target of 47.9% (2023 market share was 45.9%). We believe that by the end of the year its domestic energy drink share could move a bit above 46% from higher sales volume in 4Q24, but miss its target.

3Q24F core profit up YoY but down QoQ. We forecast 3Q24F core profit at Bt616mn (+9.6% YoY but -33% QoQ) on revenue of Bt6.1bn (-2% YoY and -16% QoQ) with domestic energy drink sales down YoY and QoQ on seasonal factors and the widespread flooding at end-3Q24 that hurt sales in local shops. Gross margin is expected at 36.4%, down from 38.2% in 2Q24 but up from 35.4% in 3Q23. We expect effective tax rate to be a low 10% from low tax rate on overseas sales. However, OSP expects to book a net impairment loss of Bt1bn in 3Q24 from divestment of its OEM glass bottle manufacturing plant in Myanmar in response to the country’s worsening political instability, depreciation of the local currency and weaker purchasing power in the business sector. We thus expect 3Q24 to be in the red to the tune of Bt384nm.

4Q24 core profit to recover YoY and QoQ. We expect domestic energy drink sales volume and market share to recover in 4Q24, backed by seasonality and re-stocking after the floods, with better consumer confidence, bringing core profit up both YoY and QoQ. We maintain our 2024F revenue forecast at Bt27.9bn (+7.2%), which lines up with OSP’s adjusted target. Net profit is forecast at Bt1.74bn (-27.6%) with core profit of Bt3.05bn (+45.7%). We project 2024 gross margin at 37%, up from 34.5% in 2023 thanks to lower cost for major materials, economies of scale and higher gross margin from overseas.

Risks and concerns. Factors to monitor are: 1) volatile costs for major cost items such as natural gas and sugar, 2) volatility in CLMV market sales volume and monetary policy and 3) recovery in consumption.

ESG key risk. OSP was assigned an “AA” rating in the SET ESG ratings. In 2024-2025, OSP aims to reduce energy consumption and CHG emissions sharply, then reduce by 30% by 2030, achieving carbon neutrality by 2050. ESG risk is in the field of product quality management (S) and customer welfare (S).