Thai Beverage - CIMB Research 2017-08-10: Will Chicken Taste Good With Beer?

Thai Beverage - CIMB Research 2017-08-10: Will Chicken Taste Good With Beer? THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - Will Chicken Taste Good With Beer?

  • THBEV to acquire over 240 KFC outlets in Thailand for THB11.3bn (US$330m).
  • Although not disclosed, our Thai research team estimates the acquisition to be in the valuation range of 11x EV/EBITDA, which we think is fair.
  • Maintain Add with an SOP-based TP of S$1.07, pending further information.

THBEV to fork out THB11.3bn for KFC stores in Thailand

  • Thaibev announced yesterday that its subsidiary The QSR of Asia Co. Ltd. (QSA) has entered into an asset sale and purchase agreement with Yum Restaurants International (Thailand) Co Ltd (Yum) for the acquisition of over 240 KFC stores as well as properties and assets necessary for the operation of the stores. The preliminary consideration is c.THB11.3bn (US$330m) for the existing stores. The acquisition is expected to be completed by end-Dec 17.
  • Thaibev said KFC is the number-one quick service restaurant brand in Thailand by brand share and outlets, and the acquisition enables it to expand further into the food business, bringing it closer to understanding consumption trends which are crucial to the long-term success of its food and beverage business.
  • On funding, we are not worried given that Thaibev has cash of THB2.5bn, a comfortable net gearing of c.0.3x, and generates annual operating cash flows of THB20bn-25bn.

Estimated valuation range is 11x EBITDA, which we think is fair

  • A contributory factor to whether the market views this positively will no doubt be on valuations. Although not disclosed, our Thai research team has estimated that the deal was priced in the range of c.11x EV/EBITDA. We think this is not only fair relative to Thai consumer peers (trading at c.15x), but is also accretive given that Thaibev currently trades at c.15x forward EV/EBITDA.
  • For a relative transaction comparable, according to our Thai research team, Yum sold 123 KFC outlets to Restaurant Development Company Limited (RDCL) for an estimated price tag of 8x EBITDA in Aug 16.

Our view on the deal: small positive

  • We were slightly taken by surprise on this deal. We had expected an M&A but we thought this would be in the beverage space. From a strategic standpoint, we do not see much synergy with the group’s existing spirits and beer businesses.
  • On the other hand, from a financial standpoint, we do think the deal is accretive if our estimated valuation range of 11x EV/EBITDA is correct. That said, this would not be considered a landmark deal as we think this only adds c.3% to Thaibev’s existing EBITDA. Even after this acquisition, the group’s food business will still be dwarfed by its sizable spirits and beer segments.
  • More importantly, we hope this deal does not distract the group from its ambitions in building up a regional beverage presence. We would be more positive on beverage acquisitions, especially in Vietnam.

Maintain Add

  • We continue to remain positive on Thaibev for its long-term thesis of transforming into a regional beverage play. 
  • We maintain our Add call with an unchanged SOP-based TP of S$1.07. 
  • The company is looking to announce its results on 11 Aug where we will be looking for more guidance on the deal. Re-rating catalysts include M&A/corporate restructuring. 
  • Risks: weak consumption.

Jonathan SEOW CIMB Research | 2017-08-10
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.070 Same 1.070