Thai Beverage - Phillip Securities 2017-12-18: Booze Boosts

Thai Beverage - Phillip Securities 2017-12-18: Booze Boosts THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - Booze Boosts

  • Recovery in Thai consumer sentiment and margin expansion via better pricing should underpin the Group’s growth in FY18.
  • Recent corporate actions to expand its footprint and business in Southeast Asia, as well as adding new revenue streams to the Group.
  • BUY with SOTP-derived TP of S$1.18.



BACKGROUND

  • 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.


INVESTMENT MERITS / OUTLOOK 


1. Improving consumer sentiment keeps alcohol pouring. 

  • 3Q17 beer sales in Thailand grew 15.2% YoY compared to 11.0% in 2Q17 and -5.7% in 1Q17. 
  • We remain positive that on-trade consumption to improve further after the end of a mourning period in Oct-17, and as a broader economic recovery takes effect in Thailand. The Thai economy is expected to grow 4% in 2017 and 3.6-4.6% in 2018, supported by higher government spending and FDI. 
  • Although it had adjusted its product prices to cover the increased excise tax costs, ThaiBev plans to review its pricing strategy, which could further expand its margin in FY18e.

2. On acquisition spree:

  1. Direct access to Myanmar’s growing spirits market via the acquisition of 75% stake in Grand Royal Group. The deal provides the Group direct access to over 60% share of whisky market, two production facilities, as well as pervasive distribution network in Myanmar.
  2.  Continue to grow its Food & Beverage range in Thailand via the acquisition of 76% shareholding interest in Spice of Asia Co., Ltd and 252 KFC stores in Thailand. These additions diversified its Food & Beverage portfolio and completed the suite of food service market offerings.
  3. Expanding its distribution network overseas via the acquisition of 49% shareholding interest in Vietnam F&B Alliance Investment JSC. It will also act as the vehicle for ThaiBev to bid for Sabeco as a domestic player, giving it an advantage over international rivals. Currently, ThaiBev is the only prospective bidder who has registered their interest for at least 25% of Sabeco.

3. Next deal on the table is the much-hyped Sabeco. 

  • Sabeco is Vietnam’s largest brewer, with nearly 41% beer market share, followed by Heineken (21.6%) and Habeco (19.8%). It reported VND4.48tn (c.US$196.6mn) NPAT in 2016. 
  • However, it comes with a hefty price tag: 25% stakes in Sabeco will costs over THB36.15bn (VND1,000 = THB1.44) and translates into associate contributions of THB0.8mn to ThaiBev (based on trailing-12M earnings) – implies a trailing PER of 47.5x, which is higher than ThaiBev’s 16.7x and the regional peer’s market cap average of 41.3x.


RECOMMENDATION

  • Maintain BUY with SOTP-derived target price of S$1.18. 
  • Any acquisition navigating the Group closer towards realizing Vision 2020 of becoming a stable and sustainable ASEAN leader in beverage could be a re-rating catalyst.
  • Its strong cash generation of over THB20bn p.a. would support the Group’s growth and development strategy through acquisitions and reinvestment in existing businesses.




Soh Lin Sin Phillip Securities | http://www.poems.com.sg/ 2017-12-18
Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 1.180 Same 1.180



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