Due to seasonality in the third quarter, including the rainy season and the flood in September 2024, Ichitan Group Public Company Limited (SET: ICHI) ‘s 3Q24 net profit dropped by 6% to THB 357 million, when compared to the previous quarter.
A decreasing sales, especially on the energy drink Tan Power, which entered storefront in April 2024, still has not met its sales goal. This is due to it being a new product and highly competitive in the market, not to mention an original equipment manufacturer (OEM) in some items.
In 3Q24, ICHI earned THB 2,141 million in revenue, even under a strong baht environment, and weakened purchasing power from the company’s trade partners like Cambodia, making exports cool down.
But if comparing the net profit of 3Q24 to 3Q23, ICHI did see an acceptable growth of 9%.
The main driver of increased revenue is domestic sales, with green tea and alkaline water spearheading the sales, the company is also releasing more products following the healthy trend and Tan San Su soda brand to support sales.
ICHI green tea products are growing with the green tea market, while other products are growing from sales of alkali water by health-conscious customers and the release of Tan Power in March-April. This led to the revenue recognition of around THB 30 million per quarter from the new product.
The internal reorganization of ICHI is also net positive to the company since increasing production led to the economy of scale, the company also decreased the amount of sugar in some of its products, while at the same time material cost for packaging, which is 40-50% of the cost, has gone down.
When combined with the shrunken cost of sales and operation per sales from 5.7% to 5.2%, thanks to more efficient marketing cost control, cutting back on marketing, and no record of equipment purchase, pushing the company’s overall gross profit margin in the quarter to 25.7% from 25.2% reported in 3Q23.
In the first nine months of 2024, ICHI has profited THB 1,100 million, with a net profit margin of 16.7%, and revenue from sales of THB 6,586 million.
For 4Q24, ICHI’s profit should be able to grow from tea sales, which is also expected to have positive growth, following Thailand’s economic trend that is driven by the government’s 2024 economic stimulus measure.
Additionally, foreign tourists into the country are also swelling, expanding sales opportunities for Tan Sun Su and Tan Power in traditional retail stores, which should boost revenue along with ICHI releasing 4-5 new product flavors.
ICHI executive stated that the company will continue to release new drink products, delivering high quality and environment-conscious products to its customers, such as the Ichitan x Mackcha collaboration campaign, using rPET that can be 100% recycled for the Gen Z customers, Ichitan Candied Apple, and the return of Ichitan chrysanthemum with honey tea to celebrate the end of the year.
Meanwhile, ICHI is expected to begin operating their new production line within the end of 2024, to support THB 9 billion sale goals according to the plan.
Although, in this last quarter, ICHI is anticipating a surge in sales and operating costs, due to heightened marketing campaigns to promote new products. The company would also need to pay an annual bonus to its employees.
Depreciation for the company’s new manufacturing machine is around THB 30 million, or THB 7.5 million quarterly. The depreciation would be calculated every 15 years, while the company would have increased production capacity from 1.5 billion bottles per year to 1.7 bottles per year.
For investors that are looking for payment in dividends, ICHI offers a good dividend yield, payable twice a year from more than 40% of the net profit after taxes. Over the period of 10 years, ICHI has continuously paid its dividends, and within the last six years, the company has paid dividends with more than 100% of its net profit per share.
ICHI announced a dividend payment of 9M24 at THB 0.6 per share. In the 4Q24, ICHI is expected to pay dividends again at THB 0.5 per share, or a dividend yield of 3.1% from 2024-2025 expectation of 6.7-7.4%.
Brokers continue to maintain “Buy” recommendations on ICHI over its positive profit projection, while the company also stands out for its dividend policy.
