Thai Beverage - Phillip Securities 2017-07-10: The Dominant And Expansive Giant

SGinvestors.io

THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - The Dominant And Expansive Giant

• 8% p.a. earnings growth from premiumization, growing share in beer and tapping the vast CLMV market.
• Commands 90% market share in spirits with S$1bn cash-flow generated yearly.
• Faster growing F&N, Oishi and Sermsuk brands become the beachhead for 2020 target of 50% earnings from non-alcoholic beverage.
• Initiate coverage with “Accumulate” rating with a SOTP-derived Target Price of S$1.05.

COMPANY OVERVIEW

• Thai Beverage Public Company Limited (“ThaiBev”) is a leading beverage producer in Thailand as well as one of Asia’s largest beverage producer. Its business consists of four segments – Spirits, Beer, Non-alcoholic Beverages (NAB), and Food.
• Its “Vision 2020” goal is to become the ASEAN region’s leading beverage company. It continues to assert its market leading positions in both spirits and ready-to-drink green tea markets in Thailand. Meanwhile, Chang beer currently commands c.40% of Thailand’s beer market share.

INVESTMENT THESIS HIGHLIGHTS

• Gaining market share in Thai beer market. ThaiBev’s ongoing premiumization efforts has paid off: Chang beer gained c.10% market share to c.40% within 3-months. We believe that the positive momentum would continue to bring Chang beer to become the leading beer in Thailand (with at least 45% of market share) by FY20e.
• Demand recovery for alcoholic beverages: 
  1. The impact from mourning period to ebb in 1Q FY18; and 
  2. Improving consumer sentiment and broader economic recovery in Thailand.
• Margins expansion benefiting from 
  1. Economies of scale, better operating leverage on production facility sharing, and synergies among the companies within its Group; and 
  2. Impending excise tax levy in Sep-17. ThaiBev has a track record of raising selling prices more than the extent of increased excise tax costs during the past tax levies.
• Corporate restructuring of Fraser and Neave, Limited (F&N) and Frasers Centrepoint Limited (FCL) to bring ThaiBev one step towards achieving its Vision 2020: 
  1. Becoming the leading total beverage producer and distributor in the region; and 
  2. Contribution from Non-alcoholic Beverages to increase to over 50% of Group revenue.
• Expanding regional footprints in ASEAN, particularly in Cambodia, Laos, Myanmar, and Vietnam. Supported by 
  1. favourable macro backdrop, 
  2. available capacity to meet demand; and 
  3. strong alliances with F&N. 
  Potential M&A candidate: Sabeco (Saigon Beer Alcoholic Beverage Corp.). ThaiBev has a strong balance sheet with plenty of room for borrowings (low gearing level at 0.48x as at 31 Mar-17).
• Diversified revenue stream into NAB and Food to enter into fast growing market segments, further capitalize on existing logistics, and mitigate the business risks from alcoholic beverage market. Management targets to turnaround NAB EBIT by FY18.

BUSINESS OVERVIEW

• As at end 31 Mar 2017, ThaiBev has a portfolio of 132 companies engaging in production, marketing and sales. It operates 
  1. 3 breweries, 
  2. 18 local distilleries and 6 overseas distilleries, and 
  3. 11 manufacturing facilities for non-alcoholic beverages. 
• The Group has an extensive distribution network covering 400,000 points of sales in Thailand, enabling timely and efficient product delivery to the market.
• The Group’s operating profit can be segregated into two segments: 
  1. ThaiBev core business, and 
  2. the c.28.5% stakes in both Fraser and Neave, Limited (F&N) and Frasers Centrepoint Limited (FCL). 
• Its core business contributed 86% to the Group’s earnings and the remaining was contributed by its Singapore listed associates.
• ThaiBev’s core product offerings are: 
  1. Spirits: Most recognized brands include Ruang Khao, SangSom, Mekhong, Hong Thong and Blend 285 locally. ThaiBev also owns 5 Scotch whiskey production facilities in Scotland and 1 distillery in China. Its Scotch whiskey products are sold in over 90 countries globally, with majority of the sales generated in Europe.
  2. Beer: Chang, the Group’s signature beer, is a mainstream beer in Thailand and is exported to over 40 countries around the world, including USA and UK, as well as several countries in Europe and Southeast Asia. It also has another Economy brand, Archa, and a premium beer, Federbräu.
  3. Non-alcoholic Beverages (“NAB”): Leading brands includes Oishi ready-to-drink (“RTD”) green tea and Jubjai herbal tea, est carbonated soft drinks, and Crystal drinking water.
  4. Food and Restaurants: Operates Japanese restaurant and ready-to-cook and ready-to-eat food business through Oishi Group. There are 239 Oishi restaurants nationwide and 3 abroad in Myanmar.

Robust and extensive distribution network ensure logistics efficiency 

• Comprehensive and pervasive distribution network is one of its major strength and key factor that elevated ThaiBev to attain its leadership position in Thailand’s beverage market.
• Management shared that 88% of its sales are generated from traditional trades, and the remaining 12% are from modern trades. While it utilizes the strength of Sermsuk traditional trade channel, ThaiBev has been constantly expanding its route-to-market via these subsidiaries: 
  • Modern Trade Management Co., Ltd: distribution to modern trade operators.
  • HORECA Management Co., Ltd: close gaps in its distribution channels to the upmarket on-premise segment (e.g. luxury hotels and restaurants).
  • Cash Van Management Co., Ltd.: manage its direct sales teams.

INVESTMENT THESIS – Alcoholic beverages to drive profitability 

1. DEMAND FOR ALCOHOLIC BEVERAGES TO RECOVER IN FY18; EXPECT SPIRITS & BEER EBITDA TO GROW 4% AND 6% CAGR OVER THE NEXT FIVE YEARS

• Alcoholic beverages are the Group’s revenue and earnings drivers. Spirits and Beer collectively account for 87% of ThaiBev’s top line.
  1. Ongoing effort to premiumize its product offerings; Moving up the value chain bodes well with the trend of rising affluence
     
     • Since its listing on the Singapore Exchange (SGX) in 2006, it has been steadily progressing up-market with premiumized products.
       1. New product launches allow ThaiBev to penetrate the segment that was traditionally dominated by foreign imports. For example, Non-local Brown Spirits (which is dominated by Diageo and Pernod Ricard): Drummer (Scotch Whisky) and Meridian (Brandy). Premium lager beer (which is dominated by Heineken and Asahi): Federbräu 
       2. Repackaging and repositioning will level ThaiBev’s playing field to compete on the global platform. It focusses on has potential to become “Global Thai Brand”, For example, Chang beer, which is distributed internationally.
     
     

     Moving up price point and expanding market share 

     • The makeover also provides an opportunity for the Group to prop up pricing and expand margin. Recent premiumization effort for Chang beer in Aug-15, not only brought its pricing to be in par with its closest competitor, Leo beer (from Boonrawd Brewery Co., Ltd), but also enabled it to eat its competitor’s lunch. Chang beer’s market share increased to c.40% from c.30% within 3 months, despite a c.10% price increment. This is a testament to its effective strategy execution as well as a major step on its goal towards realizing Vision 2020.
     • We believe the positive momentum for both market share and revenue growth to continue alongside an improving macro backdrop.
     • The Group shared that Chang beer is ranked No.1 as the top-of-mind beer brand from its recent market survey. The upbeat results are perceived as leading indicator for market share and barometer for improving brand equity. We believe that the Group could snatch up at least 45% of market share by FY2020, and achieve its Vision 2020 goal of becoming the leading beer in Thailand.
  2. Recovery of consumer confidence 
     
     • Domestic sales of beverages, both alcoholic and non-alcoholic, trend in line with the rising consumer confidence. Consumer confidence is driven by 
       1. economic outlook, and 
       2. individual financial health and purchasing power.
     • Following the passing of King Bhumibol Adulyadej in Oct-16, the government announced a one-year long mourning period and a 30-day moratorium of state events. Entertainment activities for Christmas, New Year and Songkran, as well as product launches during the period were cancelled, postponed or toned down. Alcohol drinking in public was banned during the period too.
     • We expect the coronation of new Thai King Maha Vajiralongkorn, which is slated to take place at end-2017, to lift the somber mood. The impact from entertainment ban should ebb by 1Q FY18, reviving the country’s tourism. Tourist arrivals and tourism related revenue grew 8.9% and 12.6% respectively in 2016. Thailand’s Ministry of Tourism and Sports projects a 68% growth in tourism-related revenue in 2017, hitting THB2.71 trillion.
  3. A broader Thai economic recovery 
     
     • In addition, we also expect a broader Thai economic recovery next year on the back of improving regional trade and farm income.
     • Thailand’s economic growth has been lacklustre at c.3% since the military coup in 2014. Growth has been uneven across sector. Public spending was the mainstay of economic growth, while agriculture sector remained weak.
     • Agricultural sector is the backbone of Thai economy and is a key source of rural income (about one-third of Thais are working in agriculture sector). The improvements in: 
       1. exports, supported by pick up of regional economies and global commodity prices, 
       2. agricultural production and prices, and 
       3. tourism sector, point towards a more balanced recovery. 
     • The National Economic and Social Development Board forecasts Thai GDP to grow at a range of 3.3% to 3.8% this year, up from 3.2% growth last year.
     • We are optimistic that this positive momentum could extend into 2018 and heighten consumer sentiment further. This would stem or even reverse the recent consumer trend of trading down to lower price point products.
     • Nonetheless, it is worth noting that, the coronation of new Thai King will also formally kick-start politics and a general election should follow soon after. Political uncertainties may ruffle the green shoots of recovery.

2. MARGINS EXPANSION VIA IMPROVING OPERATING LEVERAGE AND EXCISE TAX HIKE

• Excise Tax is the highest cost component for alcohol beverages. It chalked up 52.7% of Spirits Revenue and 58.9% of Beer Revenue in 9M16.
• Historically, the Thai government reviews and increases alcohol excise tax bi-annually. It has been four years since the last revision in 2013. A new Excise Tax Act was enacted on 18 Mar-17 and is expected to become effective in 17 Sep-17.
• ThaiBev has proven its ability to pass on the entire increased excise tax costs to its consumers. In fact, the Group has been strategically expanded its gross margins by raising its prices for alcohol beverages more than the increase in excise tax costs in each hike. The Group shared that the price adjustment on trade level will only take approximately 14 days.
• We expect to see a slight drawback following the tax restructuring in Sep-17, but we also believe the gross margins for its alcohol beverages to at least sustain at current level, if not an uptick in gross margin.

3. F&N CONSOLIDATION

• The restructuring at Thai Beverage involves its major stakes in Fraser & Neave, Limited (F&N) and Frasers Centrepoint Limited (FCL) remains as part of its FY17 plan.
• Currently, ThaiBev holds a 28.53% stake in F&N and a 28.44% stake in FCL; while TCC Assets Limited (TCC Assets) holds 59.35% of F&N and 59.18% of FCL.

Swapping its FCL stake with holding company TCC Assets for increased stake in the F&N: 

• By divesting FCL (a property arm), which is a non-core asset for the firm, in exchange for a bigger stake in F&N.
• Resulting in FCL and F&N to be the subsidiary of TCC Assets and F&N, respectively.
• Gives a cleaner structure and in line with its Vision 2020 to become the leading total beverage producer and distributor in the region.
• A step towards achieving its Vision 2020’s target for Non-alcoholic Beverages to contribute over 50% of Group revenue^. Currently, if we include 28.53% of F&N’s Revenue from Dairies and Beverages, NAB contributed 27.5% of Group 9M16 Revenue. Post-consolidation, the percentage contribution to NAB to Group Revenue could rise to 43.5% of Group 9M16 Revenue.
• Enable further cooperation with F&N to penetrate new foreign markets.

Current market value for ThaiBev’s stake in FCL is at S$1.55bn, while TCC Assets’ stake in F&N is at S$2.02bn. Two potential scenarios that could play out: 

1. ThaiBev to buy the entire 59.35% stake of F&N from TCC Assets but would have to cough up S$470mn in cash to make up for the difference in the market value. ThaiBev has plenty room for borrowings to fund the acquisition of stake in F&N. Its gearing ratio is only 0.48x (as at 31 Mar-17). This would result in an increase in TCC Assets’ stake in FCL to 87.62%, and ThaiBev’s stake in F&N to 87.88%.
2. Use only its FCL share sale proceeds to swap for an equivalent value of stake in F&N. At current share prices, ThaiBev’s 28.4% stake in FCL could be swapped for a 45.7% stake in F&N. Bringing ThaiBev’s stakes in F&N to 74.1%. The Group could utilise its capacity for debt for other inorganic growth (via mergers, acquisitions, and joint ventures).

4. RISING AFFLUENCE WITHIN THE ASEAN REGION UNDERPINS LONG TERM GROWTH; DEEPENING FOREIGN MARKET PENETRATION

• While demand for beer in Thailand is expected to grow in medium term, there is a need for ThaiBev to expand abroad as its home market is getting saturated and maturing. Domestic beer sales grew at 2.9% CAGR over the past five years. Consumption potential in Thailand would eventually be limited by Thailand’s population growth (population grew at CAGR of 0.3% p.a. over the past 10 years).
• The Group is banking on ASEAN countries, especially Cambodia, Laos, Myanmar, and Vietnam (dubbed “CLMV”), in its pursuit of overseas expansion.

ThaiBev’s 3 key factors to successful market penetration

1. Similar socio-demographics trends
   The rising affluent consumers with a total population of over 600 million people, urban migration, increasing investment opportunities, and tourism boom in ASEAN economies provide a fertile ground for business growth. Moreover, consumer behaviour, particularly in CLMV countries, have been strongly influenced by the popularity of Thai media broadcasts, singers, and superstars in these countries, as well as their substantial native labour force working in Thailand. As such, ThaiBev could easily achieve brand resonance in these fast growing markets.
2. Plenty of spare capacity to meet growing demand
   ThaiBev has a strong presence in Thailand. It has 3 breweries, 18 distilleries, and 11 non-alcoholic beverage production facilities spreading across Thailand to cater for the growing regional demand. Its average utilization rate of the production facilities for Spirits and Beer are at c.60% and c.50%, respectively. Meanwhile, its Soda & Water operation share the same production facilities for its Ready-to-drink Tea and Carbonated Soft Drinks operations. The production facilities in North and Northeast Thailand could reduce shipping costs and transit times to neighbouring countries like Vietnam and Myanmar.
3. Scalable business model and building strong alliances to penetrate new markets
   ThaiBev’s strategic alliance with F&N: 

   Optimize brand and distribution synergies 

   • Leveraging on each other’s portfolio of brands, as well as distribution and bottling systems, for business expansion in SE Asia. Combined, they are one of the largest and most extensive in SE Asia.
   • This means better production facility sharing, reduction in transportation cost, synergies among each sales channel such as traditional and modern trades, and better order fulfilment via these channels. ThaiBev could also leverage on F&N’s robust production facilities in Malaysia for its expansion into other halal markets in SE Asia, such as Indonesia.
   • For example, the successful launches of Oishi and est beverages in Malaysia and Singapore. Oishi is ranked No.1 in the Malaysia green tea market and No.4 in the ready-to-drink tea market within its first year since launch. Oishi has also successfully penetrated the Myanmar market by collaborating with F&N’s branch offices in the country.

   Opened up opportunities for joint investment in ASEAN

   • They could adapt and replicate their successful business model in Singapore, Malaysia and Thailand for other ASEAN countries. Both F&N and ThaiBev recognize Vietnam and Myanmar as key growth markets. Each of them have incorporated a subsidiary in Vietnam to facilitate distribution in the country – F&N will focus on distributing non-alcoholic beverages and Chang beer, while Thaibev on spirits. 
   • Chang beer was successfully launched in Vietnam in Sep-16. It is priced slightly higher than Tiger beer, to compensate for the import duty and taxes. This is also in line with its positioning as a premium beer in Vietnam. Chang beer is the only beer to take on a refreshing new look with its iconic green bottle. Both market incumbents, i.e. Saigon beer (by Sabeco) and Tiger beer (by Heineken), are using amber bottles. Having said that, ThaiBev is still waiting for its license approval to distribute spirits in Vietnam.

   Vietnam’s ballooning demand for beer; backed by growing population base 

   • Within the region, Vietnam stands out as the low hanging fruit. It is a significant alcoholic beverage market with the highest alcohol consumption per capita in the region. According to Vietnam Beverage Association (VBA), Vietnam produced an estimated 3.4 billion litres of beer and 300 million litres of liquor in 2015, and 43.8% of the adult population consumes liquor and beer.
   • It is also the No.1 market in SE Asia for beer consumption. Of the total alcohol consumed in Vietnam, over 90% is beer. On average, each Vietnamese person drank 38 litres of beer in 2015, more than four times higher than the global average.

   Successful acquisition of stakes in Sabeco (Saigon Beer Alcoholic Beverage Corp.) would be a long-tail catalyst that could power its earnings higher for years. 

   • Sabeco is the country’s largest brewer by sales with c.40% market shares, followed by Heineken and Habeco with 20% each. Vietnam’s Ministry of Industry and Trade aims to produce 4.1 billion litres of beer in 2020, 4.6 billion litres of beer in 2025, and 5.5 billion litres of beer in 2035.

5. DIVERSITY IN REVENUE STREAM; SHIFTING TO NAB AS THE NEXT GROWTH ENGINE

• Its multi-product and pricing model enables the Group to capture the entire value of beverage market and consumer groups from different income, age and cultural background.
  1. White Spirits: An economy drink, almost entirely Almost entirely consumed at home by farmers, agriculturists, and labourers. This consumer group benefits from minimum wage.
  2. Brown Spirits: An aspirational drink for consumers with higher purchasing power to trade up. Sold in off-premise (e.g. liquor and convenience stores), on-premise (bars and restaurants), and entertainment complex.
  3. Beer: Mainly consumed in restaurants and entertainment complex.
• During economic downturn, consumers tend to switch down, i.e. moving from high-priced drinks to lower-priced drinks. For example: 
  • Chang to Archa beer, or Brown Spirits to White Spirits. In this scenario, ThaiBev’s overall volume for beer and spirits may be preserved.
  • Imported spirits into locally-made Brown Spirits. ThaiBev could be a nominal beneficiary in such cases (ThaiBev commands c.95% of Brown Spirits market share).
  • White Spirits to cheaper illegal spirits (or tax-evaded White Spirits).
• Its strategic diversification of business lines into the non-alcoholic beverage and food sectors helped to diversify its product portfolio, enter into fast growing market segments, further capitalize on existing logistics, and mitigate the business risks from alcoholic beverage market.

NAB: Targeting for an EBIT-turnaround by FY2018 

• The Group branched out into non-alcoholic beverages at the start of 2008.
  NAB is divided into three core categories, namely Oishi ready-to-drink (“RTD”) green tea, est carbonated soft drinks (“CSD”), and Crystal drinking water. While Cyrstal drinking water accounted for c.61% of 9M16 NAB volume, it only generated one-third of total NAB sales. The remaining of the sales are contributed equally by Oishi RTD tea and est CSD. 
• There has been an increasing contribution from NAB segment into Group revenue and overseas sales. The Group shared that 15% of Oishi’s sales volume are distributed overseas, to Malaysia, Singapore, Laos and Cambodia via F&N’s robust distribution network. 
• Oishi RTD green tea segment has reached profitability while Crystal drinking water is above breakeven point. The only laggard is est CSD. 

Demand of soda water to grow together with whiskey consumption. 

• There is a strong association of whiskey and soda water. In Thailand, whiskey is typically consumed with ice or soda water, and rarely by its own. Recovery in Spirits demand would lift sales volume of its soda water. 

Demand for drinking water to keep flowing. 

• Thailand is facing water resources problems mainly due to inefficient water resources management. Water-related disasters, such as extreme droughts during dry season and floods which happen nearly every year during monsoon season, cause the scarcity of freshwater resources. On the other hand, increasing population, urbanization, agricultural and industrial expansion are also impacting water quality of various water resources. As such, tap water in Thailand is generally not recommended for consumption. 

Oishi RTD green tea to benefit from heightened health awareness and demand for convenience. 

• RTD green tea offers consumers healthy and convenient hydrating alternatives. Green tea has gained international popularity with its purported health benefits, and the younger generation, seeking for convenience, is driving the RTD industry.

Est gaining foothold amid competitive CSD market. 

• Est is a 4-year old young brand and has since garnered c.10% market share from the two incumbents, Coca-Cola and PepsiCo. In near term, the Group plans to: 
  • Improve its route-to market and enhance logistic efficiency Equip Sermsuk’s sales team with knowledge and skill sets for better integration with ThaiBev and to reap operating synergies. 
  • Incorporate Sermsuk’s into ThaiBev’s computerized logistics management.
  • A leaner logistics model by combining and reducing the number of truck deliveries to traditional trade operators. 
• Build loyalty with young consumers as well as a base in export markets 
  • Leveraging on the current trends and hype. ThaiBev is trying to court the millennials and Generation Z with South Korean pop group, Got7, as brand ambassadors. K-Pop collaboration not only opens up interest from the local teen community but also international market. 

Food: Still at infancy stage 

• Food contributed only c.4% to the Group Revenue. Food segment comprises two segments: 
  1. Japanese restaurants/kiosks; and 
  2. chilled and frozen food. 
• Management shared that most of the sales are generated from restaurants. 
• The Group engaged in an aggressive expansion in the past 4 years with a net opening of c.70 outlets, bringing a total of 242 outlets as of 31 Mar-17. The Group had ventured overseas with a total of three outlets opened in Myanmar, after an outlet in Mandalay closure in Nov-16.

Taking a breather. 

• The Group shared that it will slowdown in its expansion plan as the Thais’ purchasing power has yet to recover. In near term, it will continue to nurture its existing outlets, in particular the 127 Shabushi restaurants. ThaiBev noted that the shabu-shabu concept restaurants draw higher gross margin as compared to its Oishi Japanese buffet restaurants. 
• On the other hand, it will adjust the pricing for Oishi Japanese buffet restaurants to account for the high raw material costs.

Focus at domestic market. 

• The Group has recently invested in a joint venture with Mei-Xin (International) Limited, a company of Maxim’s Group, which is the largest restaurant operator in Hong Kong, to operate a bakery business in Thailand before expanding to ASEAN.
  

FORECAST ASSUMPTIONS

1. Demand recovery post-mourning period in FY18; Supportive macro backdrop to underpin sales to grow at 8.6% CAGR over the next 5 years 

1. Spirits: ThaiBev to maintain its monopoly position. We expect a slight contraction of c.3% YoY in FY17e sales volume due to impact from mourning period. However, demand should neutralises in 1Q FY18. Nonetheless, we expect a low single digit growth in both sales volume and value.
2. Beer: ThaiBev to extend its positive momentum in gaining market share to c.45% in FY21e. Sales from beer to grow at c.5% p.a. between FY17-21e, owing to gain in market share and increase in sales price.
3. NAB: A turnaround at EBIT level by FY18e on improved operating leverage in tandem with higher sales volume.
4. Food: Sales to improve on the back of broader economy growth, which in turn leads to an uplift in consumer sentiment and purchasing power. Maintain profitable if not slight improvement in with better cost management.

2. Steady margins expansion

1. Increase in selling prices for Spirits and Beer following excise tax hike in Sep-17.
2. The prices of main raw materials, such as molasses (sourced domestically), malt and hops (sourced overseas from US, Europe and Australia) are relatively stable in near term.
3. Lower packaging costs for Beer. After its repackaging initiative in Aug-15, c.60% of the bottles used are recycled bottles. Management shared that the percentage of recycling beer bottles could reach up to 80%.
4. Improved economies of scale, better production facility sharing, and synergies among the companies within its Group.

3. Strong free cash flow and sustainable dividend payout 

• The Group’s free cash flow stood at THB15.58bn in 2016 and should improve over years with rising earnings and we do not expect any significant capital expenditure (CAPEX) for production facilities in near term. The Group has earmarked about THB4-5bn budget for: 
  1. Maintenance CAPEX for Spirits and Beer. No need for additional capacity, current utilisation rate for alcohol beverages is at 50-60%; 
  2. Replacement of production lines which would cost approximately THB1bn. This is to replace the old lines with the new high-tech aseptic cold-filling PET bottle lines, hence we do not expect any increase in production capacity. The Group shared that this would entitle ThaiBev for Board of Investment (BOI) tax incentives and extend its current tax benefit (which is expiring this year) for another 8 years; and 
  3. Expansion and innovation for Food business. We believe that the fund will mainly be for its JV with Mei-Xin (International) Limited.
• The Group has a dividend policy of not less than 50% payout ratio. Dividend payout ratio ranged between 58-70% in the past 5 years. We expect the Group to utilize its cash for F&N restructuring or M&A deals.

VAULATION

Sum-of-the-parts (SOTP) target price of S$1.05. 

• We value the respective core businesses at respective peers’ average; while its affiliated companies, F&N and FCL, are valued based on their latest market value.
• ThaiBev is currently trading at trailing PER of 22.9x, which is about one standard deviation higher from its 1-year average. It is trading at a discount to its peers’ average of 26.7x for distillers, 95.9x for breweries and 26.3x for non-alcoholic beverages. 
• Our SOTP TP of S$1.05 implied 23.5x/22.5x FY17/18e PER.

INVESTMENT RISKS

1. Unable to fully pass on additional costs to consumers, thus compress margins. Additional costs could arise from: Supply chain disruption which could increase and logistic costs; Increase in raw material and labour costs.
2. Regulatory risk in operating countries, particularly those governing alcoholic beverage businesses and consumption of alcoholic beverages. There is also a possibility of sin tax levied on beverages with unhealthy sugar level.
3. Political uncertainties, especially after coronation of new Thai King and elections, could dampen consumer sentiment.
4. Prolonged weakness in economy and demand remained slow post mourning period.

Soh Lin Sin Phillip Securities | http://www.poems.com.sg/ 2017-07-10

Phillip Securities SGX Stock Analyst Report ACCUMULATE Initiate ACCUMULATE 1.05 Same 1.05