Thai Beverage PLC - OCBC Investment 2016-06-16: Turning Neutral For Now

Thai Beverage PLC - OCBC Investment 2016-06-16: Turning Neutral For Now THAI BEVERAGE PUBLIC CO LTD Y92.SI 


  • Key growth driver from beer
  • Look out for M&A and corporate restructuring
  • But limited upside at current level

Fixating on beer and NAB for the coming years

  • Post 1Q16 results, Thai Beverage’s (Thai Bev) share price has done well thus far. The group’s 1Q16 results served as a testament to the success of its new marketing strategy for Chang Beer, and suggested that the beer segment’s impressive growth would likely be sustainable. 
  • Recall that the market share for beer had increased from 30% to ~40% and ASP, volume and net profit had improved significantly. 
  • Thai Bev also continues to dominate the domestic spirits market with an 82% volume share (2015) according to Euromonitor. But due to the maturity of the industry, we expect ~1% revenue growth here and believe that the beer segment will help to drive growth in the coming years. 
  • The Non-Alcoholic Beverage (NAB) segment could narrow its losses this year, but high SG&A expenses would still have to be incurred whenever new products are launched.

M&A and corporate restructuring to expedite Vision2020

  • In view of their Vision2020 strategic roadmap towards having 50% revenue contribution from countries outside Thailand as well as from NAB, this would potentially be accelerated by M&A as well as corporate restructuring involving the entities (TCC, F&N, FCL, Thai Bev). 
  • We also like that F&N has S$700m available for M&A. Notably, Vietnam looks to be a potentially important market, with SABECO (Saigon Beer Alcohol Beverage Corp) reportedly seeking official approval to sell 53% of its stake through public auction. 
  • In addition, Vinamilk, in which F&N holds an 11% stake, had also removed its foreign ownership cap.

Turning neutral for now due to share price run up

  • Based on sum of the parts (SOTP) valuations and rolling our valuation to one-year forward, our fair value estimate for the stock is lifted from S$0.83 to S$0.89. However, following the share price run up and in view of the limited upside at current levels, we are downgrading the stock to a HOLD for now. 
  • We remain positive over the group’s growth prospects in the years ahead, thus we advocate longer term investors to consider accumulating at S$0.85 and below. 
  • We have not incorporated the possibility of M&A into our assumptions.

Jodie Foo CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-06-16
OCBC Securities SGX Stock Analyst Report HOLD Downgrade BUY 0.89 Up 0.83