Thai Beverage Public Company (THBEV SP) - DBS Research 2017-12-19: Good Morning, Vietnam!

Thai Beverage Public Company (THBEV SP) - DBS Vickers 2017-12-19: Good Morning, Vietnam! THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage Public Company (THBEV SP) - Good Morning, Vietnam!

  • ThaiBev’s 49% unit named as winner for 54% stake in Saigon Beer Co (Sabeco), a market leader in Vietnam.
  • Acquisition done at high multiples but strategic for growth and regionalisation.
  • Balance sheet able to fund acquisition; post acquisition D/E estimated at 0.96x (based on effective stake).
  • May trigger monetisation of Fraser Centrepoint Ltd to deleverage.

What’s New 

ThaiBev’s unit emerges as bid winner for majority stake in Sabeco. 

  • According to Vietnam Exchange and news reports, ThaiBev’s 49% unit, Vietnam Beverage Co Ltd (VBC), was named as the winner for the 54% majority stake in Saigon Beer Co (Sabeco). The minimum price was set at VND320k per share and the deal size was about US$4.84bn.
  • As at time of writing, ThaiBev has yet to make a formal announcement. However, we estimate that ThaiBev will likely fund the acquisition largely through debt, coupled with internal resources. This move is a step towards its Vision 2020 strategy for regionalisation and to diversify outside of Thailand.
  • (ThaiBev's announcement published on 2017-12-19 9:06am)

Gearing currently healthy at 0.4x. 

  • Post its recent acquisitions of the KFC franchise and 75% stake in Grand Royal Whisky in Myanmar, we estimate that ThaiBev’s net gearing is healthy at around 0.4x. This leaves available headroom for a potential acquisition of Sabeco. 

Net gearing estimated to reach 0.96x, assuming effective stake of 26.5%. 

  • Assuming VBC has been successful in acquiring a 54% stake in Sabeco, and with ThaiBev holding a 49% stake in VBC, ThaiBev’s effective stake in Sabeco would be around 26.5%. This would put ThaiBev’s investment at around US$2.37bn (or THB81bn/S$3.24bn).
  • Assuming the acquisition is fully debt funded, ThaiBev’s net gearing would be 0.96x with a net debt to EBITDA of c.3.3x.
  • While high, this would be below the level when it acquired the 28.5% stake in FNN back in 2012. Back then, ThaiBev’s net debt-to-equity and net debt-to-EBITDA ratios reached 1.22x and 4x, respectively in FY12.

Strategic intent. 

  • At the minimum bid price of VND320k per share, valuation looks rich at over 42x/38.4x FY17F/18F consensus PE. 
  • We estimate that at this multiple, the acquisition is likely to be barely accretive immediately, if at all, depending on funding costs and structure. However, we believe the rationale stems strongly on its strategic intention to gain a foothold into the leading brewer in Vietnam.
  • According to Euromonitor data, Sabeco holds about 41% market share of the beer market, ahead of Heineken and Habeco which are second and third, respectively, with shares of c.23% and 18% (in 2016).

Trigger for FCL monetisation. 

  • Along with the acquisition, we believe ThaiBev could look to initiate its plans to monetise its 28.3% stake in Fraser Centrepoint Ltd (FCL), which is currently worth about S$1.7bn (US$1.27bn). Assuming a total divestment at the current market price, ThaiBev’s net D/E and net debt/ EBITDA will drop to 0.66x and 2.3x, respectively.

Our view. 

  • While some investors may baulk at the high multiples, we believe this acquisition bodes well for ThaiBev in its bid to regionalise its operations, and over the longer term. The acquisition would allow FNN to pursue Vinamilk (of which it already owns 19.16%). 
  • Overall, assuming that the Sabeco transaction materialises, Vietnam will be the second largest market for the ThaiBev group of companies.

Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2017-12-19
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