Thai Beverage PLC - OCBC Investment 2016-01-14: More M&As brewing for beer industry?

Thai Beverage PLC - OCBC Investment 2016-01-14: More M&As brewing for beer industry? THAI BEVERAGE PUBLIC CO LTD Y92.SI 

Thai Beverage PLC: More M&As brewing for beer industry? 

 Corporate activities in beer market 
 Inorganic growth would expedite vision 2020 aim 
 Expect continued expansion into new markets 

More news of M&A in beer industry 

  • With regards to the Anheuser-Busch InBevSabMiller merger, some beer brands under these companies’ portfolio are reportedly up for sale to aid regulatory clearance. 
  • A recent article by the Wall Street Journal stated that brewers have been considering bids to buy beer brands Peroni and Grolsch. 
  • Thai Beverage had reportedly expressed interest to buy the brands as well, but the company has declined to comment. 
  • Another well-known deal in the industry occurred back in early 2015, when the Vietnamese government, which owns 89% of Saigon Beer-AlcoholBeverage Joint Stock Corporation (SABECO), stated their intentions to sell a 53% stake to strategic investors and the public. It was later revealed that TCC Group was eyeing a stake rather than Thai Beverage. 
  • Broadly, we believe the maturing beer market in most developed countries are pushing industry players to look for any M&A opportunity to broaden their network and boost profitability. Thus, we are also cognizant of the challenges to a successful M&A. 

Collaboration to continue with expansion into new markets 

  • Following Fraser and Neave’s (FNN) sale of its 55% stake in Myanmar Brewery Limited to Myanma Economic Holdings (MEHL), FNN currently has a total cash of S$966m. 
  • Management has stated in their latest annual report that this cash pile allows them to “seize opportunities for long term growth and pursue strategic partnerships”, in line with the group’s Vision 2020 to diversify their presence geographically. We think that if necessary, FNN and Thai Bev partnering each other for potential acquisitions is a conceivable possibility. 
  • In the meantime, core business developments would likely continue this year, with new products being developed and distributed across each other’s distribution network. We expect both entities to expand into their new markets - Myanmar, Vietnam, Indonesia and Philippines, but this would result in varying marketing expenditure as they strive to build brand presence in these countries, thus margins for the segment would be affected in certain quarters. 

Strategically viable for the long-term 

  • Nonetheless, we remain positive on the group’s long-term growth plans. 
  • Maintain BUY with fair value estimate of S$0.83.

Jodie Foo CFA OCBC Securities | 2016-01-14
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.83 Same 0.83