Thai Beverage Public Company (THBEV SP) - DBS Research 2017-10-13: Footprint In Myanmar Through Grand Royal Whisky

Thai Beverage Public Company (THBEV SP) - DBS Vickers 2017-10-13: Footprint In Myanmar Through Grand Royal Whisky THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage Public Company (THBEV SP) - Footprint In Myanmar Through Grand Royal Whisky

  • Thai Beverage acquired 75% aggregate stake in leading whisky player in Myanmar for US$742m; entry PE (preliminary) at 37x.
  • Move seen as strategic with potential synergies.
  • Spirits consumption low in Myanmar vis-à-vis neighbouring countries.
  • Maintain positive view on ThaiBev; expect consumption to improve post mourning period.

What’s New 

  • ThaiBev announced that its indirect wholly-owned subsidiary, International Beverage Holdings (Singapore) Pte Limited, has acquired an aggregate 75% stake in the shares of Myanmar Supply Chain and Service Co., Ltd. (MSC) and Myanmar Distillery Co., Ltd. (MDC), both of which are incorporated in Republic of the Union of Myanmar.

Leading whisky brand in Myanmar - Grand Royal. 

  • The companies operate two production facilities involved in the distillery, blending and bottling plants in Yangon and Mandalay, and other related business under the spirits brand, Grand Royal
  • Grand Royal is the largest and number one whisky player in Myanmar.

Transaction size of US$742m, estimated entry PER of mid-thirties.

  • The aggregate transaction deal size through the acquisition of the various entities is estimated to be US$741.6m. The aggregate book value of the entities is US$51.4m. 
  • Based on ThaiBev’s announcement, the transaction would increase the Group’s 9M2017 earnings per share by c.1.7% to THB1.20, from THB1.18. Based on this, our back-of-envelope calculation suggests that the acquisition was done around mid-thirties PER. 
  • The transaction will be funded through internally generated cashflows and bank borrowings. ThaiBev’s net debt/equity remains healthy at 0.3x (as of Jun 2017).

Rationale – part of Vision 2020. 

  • The rationale for the transaction is within the ThaiBev’s stated plans under its Vision2020, focusing on growth in the spirits business in Myanmar and Southeast Asia. Other markets/ products that the Group is keen on include Vietnam, beer, and nonalcoholic drinks.

Our Views 

On an acquisition trail again, recent sizeable deal is KFC franchise. 

  • The deal is not surprising to us given the Group’s stated intent on expanding outside of Thailand, since its last sizeable acquisition back in 2012 with the acquisition of stake in FNN
  • In fact, ThaiBev now seems to be in an acquisitive mode again with the recently announced acquisition of a KFC franchise for THB11.3bn. The deal is pending completion by Dec 2017. (See report: Thai Beverage Public Company - DBS Research 2017-08-10: A surprise move on fried chicken).

High multiple for strategic acquisition, presence in Myanmar; potential synergies? 

  • Notwithstanding the seemingly high valuation (based on our initial preliminary estimate), we believe this acquisition has a clear strategic intent to extend and diversify outside of Thailand.
  • Furthermore, we believe there could be potential synergies to be reaped from distribution given that Myanmar is the largest export market for Chang Beer.

Gains a leading position into a new market; low per capita spirits consumption. 

  • In addition, this acquisition allows ThaiBev to gain a leading position in the Myanmar spirits market. 
  • Market data is not readily available but according to data from Euromonitor, the Myanmar spirits market is estimated to grow by a 5-year CAGR of 7.6% (2012-2017) to reach a total volume of 20.1m litres in 2017. This implies per capita consumption of 0.4 litres, which pales in comparison to Thailand (10.7 litres) and lower than Vietnam (0.6 litres).

Consumption in Thailand should turn better post mourning period. 

  • ThaiBev’s share price has been relatively flat vis-à-vis the market over this year given concerns of weak consumption due to the mourning period in Thailand. This is now coming to an end, and we believe consumption should turn for the better post-Oct, and into 2018.

Thai-listed consumer plays have performed; election slated for Nov 2018. 

  • Furthermore, we note that Thai-listed domestic consumer stocks have performed well since early September possibly on optimism of a pick-up in consumption post-mourning period. In addition, with the recent announcement for elections to be held in November 2018, we believe optimism for consumption should pick up.
  • Despite all the positive news, ThaiBev’s share price performance has lagged.

Retain BUY, TP unchanged at S$1.07. 

  • We retain our forecast and Target Price for now, and re-iterate our BUY rating for ThaiBev.

Andy SIM CFA DBS Vickers | Alfie YEO DBS Vickers | http://www.dbsvickers.com/ 2017-10-13
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.070 Same 1.070