Hemp-related stocks hit new highs amid warnings of market rush

Hemp-related stocks on the Stock Exchange of Thailand (SET) rallied Thursday on the legalization of the industry, led by R&B Food Supply (RBF) rising robustly 9.94 per cent to 17.70 baht per share.

RBF stood to gain from its upstream and midstream hemp operations (cultivation and processing, respectively), according to Nomura Securities, which gave the company a ‘speculative buy’ rating and forecast growth in annual earnings of 11 per cent for 2021. The price peaked at the new high of 18.20 baht in the morning session with a transaction value of more than 490 million baht.

Beverage firm Ichitan Group (ICHI) bounced 5.11 per cent to the new high of 14.40 baht, with a transaction value of more than 735 million baht, as it is reportedly preparing to launch a hemp-infused drink this April.

An indoor marijuana growing facility for cross pollination courtesy of Golden Triangle Group.

Meanwhile, another drinks maker SAPPE is launching its two hemp-infused products as testers while waiting for the Food and Drug Administration (FDA) to pass the license. The share price rose 2.63 per cent to 29.25 baht.

DOD biotech (DOD), a midstream player as hemp extract developer in dietary supplement and cosmetic products, has signed several business plans with other listed companies such as JKN Global media (JKN), Rojukiss International (KISS), Beauty Community (BEAUTY), and Chayo Group (CHAYO).

According to the recent update from the FDA, they are drafting a notice to enable the use of cannabidiol extract from hemp in cosmetic products which is expected to be clear by April.

During mid-day break, DOD share price jumped 5.44 per cent to 15.50 with a transaction value of 883 million baht. It rose for the third day in a row.

Even the larger company Charoen Pokphand Group (CP), which owns CPALL and CPF, have joined the bandwagon and declared hemp-related products but the firm has yet to confirm the details in the business plan.

The hype has prompted some companies with no experience in the food & beverage (F&B) segment to talk about hemp and see their share prices surge. Among them is Gunkul Engineering (GUNKUL), a power producer, which saw a persistent rise in its share price after the firm announced that it was preparing to request the license to grow hemp in their power plant units.

Brokers’ evaluation

Asia Plus Securities said in the research note that since the start of the year stocks with connection to hemp have seen a strong rise as they were overvalued by the hype among investors, considering their high price-to-earnings ratio.

Many stocks have moved up fast and held at high levels, Asia Plus analyst said, pointing out that the exact earnings estimation from the hemp business is still unclear. The top pick in the food and beverage section is SAPPE.

Estimating the earnings of cannabis and hemp business in listed companies was quite difficult at the moment, said an analyst at Kasikorn Securities, adding that the market does not yet know the exact selling price of crops for the upstream businesses.

The analyst said that there were lots of companies in downstream businesses, including those in the restaurant, beverage, and dietary supplement businesses. However, she predicted that there might be some difficulties in getting licences, which could possibly delay production.

“Based on limited information on hemp and business plan, we still keep the same earning outlooks for each company,” Kasikorn added. But the overall rating for the food and beverage sector was still positive on the back of 19-per-cent net profit growth in 2021 and the anticipation that the FDA will speed up the licence process.

But Kasikorn said that its top pick stock in the F&B sector was Carabao Group (CBG), with a target price of 165 baht per share, as they anticipate that it could increase its gross processing margin and reduce operational expenses to boost earnings growth by 23 per cent in 2021.

Warnings by regulators

Earlier, a senior executive at the Stock Exchange of Thailand warned investors to take care when investing in hemp-related businesses as he saw instant rises in share price related to the news on hemp.

“Investors should study the possibility of doing such business in each company,” said Manpong Senanarong, explaining that there are some companies with no business model related to hemp who want to participate in the trend.

He divided the companies into two groups: ones with direct links to the hemp industry, namely, the food and beverage group, and ones that have no history of doing such a hemp-related business and who want to expand their model.

For the latter group, “the plans must be submitted to the Stock Exchange of Thailand by the company’s board of directors” for clarification, said Manpong. The Stock Exchange of Thailand will inspect how these companies have connections to the hemp business and the consequence on the share price, he added.

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