Thai Beverage - CIMB Research 2017-12-19: Sabeco Seemingly Pricey; M&As Likely Underway

Thai Beverage - CIMB Research 2017-12-19: Sabeco Seemingly Pricey; M&As Likely Underway THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - Sabeco Seemingly Pricey; M&As Likely Underway

  • Vietnam Beverage wins bid for 53.6% of Vietnam's largest brewer Saigon Beer Alcohol Beverage Corp (Sabeco); ThaiBev now has 26.3% effective stake in Sabeco.
  • The aggregate acquisition price for the 53.6% stake is c.VND109.7tr (THB156bn) based on VND320k/share.
  • Illustrative FY9/17 net debt of 1.3x (vs. existing 0.2x) implies ThaiBev foots majority of the consideration and that the deal may be pricey at c.78.7x forward valuations.
  • We tweak our forecasts and downgrade our SOP-based TP to S$1.00. Downgrade to Hold. 
  • ThaiBev may embark on prospective M&As to re-optimise its balance sheet but near-term uncertainties may cap interest in the stock.

Gaining c.26.3% of Sabeco in acquisition worth VND109.7tr 

  • ThaiBev announced that its indirectly-owned unit Vietnam Beverage has won the bid for a 53.6% stake in Sabeco at an aggregate price of VND109.7tr (THB156bn) based on a bid price of VND320k/share. This leads to ThaiBev controlling an effective 26.3% in Sabeco (vs. 12.3% in our previous report) via its indirect wholly-owned subsidiary BeerCo's 49% stake in Sabeco owner Vietnam F&B Alliance Investment Joint Stock Co. 
  • 28 Dec is the payment due date to complete the share sale.

Bearing 100% of the acquisition implies deal may be pricey 

  • ThaiBev's illustrative FY9/17 net gearing of c.1.3x (from reported 0.2x), assuming the acquisition was effected at end-Sep, implies close to 100% of the purchase consideration, which we deem puzzling, given its 49% stake. 
  • Whilst we like the entry into a player with a 41% market share in a burgeoning beer market, the additional borrowings skew deal valuations to FY17/18F P/E of 86x/79x vs. 42x/38x if just 49% of funding (c.THB76bn) was involved.

Marginal earnings dilution; but net gearing spikes 

  • We estimate the 26.3% stake will lift ThaiBev’s FY18-20F associate contributions by c.THB2bn-2.4bn, based on Bloomberg consensus' net profit growth forecasts of 10-12%. However, this is outweighed by the additional debt load of c.THB3.6bn-4bn. 
  • Overall, we forecast FY18-20F EPS to fall 4.5-1.4% and FY18F net gearing to rise 1.5x (from 0.2x) post consolidating the Sabeco, KFC Thailand and Myanmar Distillery acquisitions. FY18F net gearing could be a palatable 0.9x, assuming only 49% of the purchase consideration.

Potential M&As to re-optimise balance sheet 

  • We believe ThaiBev may embark on funding exercises to re-optimise its balance sheet post its acquisition spree this year (total spent: c.THB191bn). Options available may include:
    1. rationalising its stake in Frasers Centrepoint Ltd (FCL) (c.THB44bn based on 28.4%-stake);
    2. cash-call from the 51% partner in Vietnam F&B Alliance Investment Joint Stock Company; and
    3. raising its own equity funding.

Downgrade until hangover dissipates 

  • We are optimistic on the outlook for ThaiBev’s incumbent spirits and beer business given the improved Thai consumer sentiment in 2018F, and applaud its commitment towards achieving its Vision 2020 goals. However, uncertainties arising from this deal - impact on its balance sheet, and returns - may cap near-term interest in the stock, in our view. 
  • Post imputing the potential impact of Sabeco, we reduce our SOP-based TP to S$1.00 (from S$1.15). 
  • Upsides risks to our call include lower-than-expected financing costs.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-12-19
CIMB Research SGX Stock Analyst Report HOLD Downgrade ADD 1.00 Down 1.150