Thai Beverage - CIMB Research 2016-09-29: Still nothing from Leo…at least for now

THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - Still nothing from Leo…at least for now

We spoke to management to get an update on 1) reaction from Leo, 2) M&A possibilities in Vietnam, and 3) expansion plans in the food business.
Our biggest takeaway was Leo has yet to do anything, while Thaibev recently launched a new soda water brand to further add to Boon Rawd’s to-do list.

As we enter the seasonally strong 4Q, we are somewhat surprised that rival Leo (owned by Boon Rawd) has yet to retaliate to Chang’s market share gains. Chang's market share is still at the 40% level while Leo commands c.50%.
Thaibev maintains the view that Leo will react soon, but it is not yet clear whether Leo would repackage its bottles, extend its current product line, or introduce an entire new brand.

As Boon Rawd prepares to protect its beer market share, Thaibev took the opportunity to launch a new soda water product a month ago (under the brand Rock Mountain). The idea is to attack multiple segments and thin Boon Rawd’s resources.
For background, Boon Rawd currently dominates the soda water market with an over 90% share. Thaibev has a c.5% market share with its Chang and Crystal soda water brands. Launch of the new Rock Mountain brand was therefore an attempt to gain market share from Boon Rawd’s Singha soda water and to distract them from the beer battle.
Thaibev has so far only started distributing Rock Mountain on the on-trade and traditional retail channels, and will start distribution on the modern trade next month.
It remains too early to tell if Thaibev’s strategy will pay off, but we applaud management’s efforts and believe this will at least distract Boon Rawd.

While management declined to provide details on Vietnam, it did confirm it is open to M&A. The Vietnamese government’s plans to divest its entire stake in Sabeco and Habeco has been well documented and we believe Thaibev is among the potential buyers. Thaibev’s current exposure in Vietnam is minimal, having only started exporting Chang there a couple of months ago.
According to Euromonitor and news reports, Vietnam’s current beer market share structure is: Sabevo (c.40-50%), Heineken (20-25%), Habeco (20-25%).
Based on a Bloomberg article, Sabeco and Habeco will cost c.US1.8bn and US$0.4bn, respectively. This implies Thaibev will need to raise capital. Its current net gearing is 0.32x. Key risk would be overpaying for these assets.

Thaibev also recently entered into a 70/30 JV with Hong Kong’s Maxim’s Group to expand its cake and bakery business in Thailand. Total registered capital for the JV is a mere THB40m and the JV is unlikely to contribute meaningfully to the group’s bottomline, in our view.

Further beer market share gains will be a key catalyst for the stock, in our view. We reiterate our Add rating and SOP-based target price of S$1.14.

LIM Siew Khee CFA CIMB Research | http://research.itradecimb.com/ 2016-09-29

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