Thai Beverage - OCBC Investment 2018-01-11: Entry Into Vietnam In-line With Vision 2020

Thai Beverage - OCBC Investment 2018-01-11: Entry Into Vietnam In-line With Vision 2020 THAI BEVERAGE PUBLIC CO LTD Y92.SI

Thai Beverage - Entry Into Vietnam In-line With Vision 2020

  • Sabeco acquisition cost ~US$4.8b.
  • Consumption in Thailand to recover.
  • Maintain BUY for now.

Buying an effective 26.3% equity stake in Sabeco 

  • Thai Beverage PLC (ThaiBev) announced last month that it won the bid to acquire 343.6m shares (or 53.6% equity stake) in Sabeco, at VND320,000/share, translating to an aggregate cost of THB156b (~US$4.8b). This acquisition will be done through Vietnam Beverage (VB), a wholly-owned subsidiary of Vietnam F&B, which in turn is ThaiBev’s indirect 49%-owned associate. 
  • While ThaiBev’s exposure to this acquisition is only 49% through its stake in Vietnam Beverage, ThaiBev will be bearing 100% of the acquisition cost through a shareholder loan to Vietnam Beverage . 
  • In terms of funding, ThaiBev’s wholly-owned subsidiary, BeerCo, has secured a ~US$2b loan facility while ThaiBev itself has secured a total of five loan facilities to borrow THB100b (~US$3b).

Net gearing to spike with Sabeco acquisition 

  • On a pro-forma basis, assuming the acquisition had been done at beginning of FY17, ThaiBev’s net gearing will increase significantly from 0.2x to 1.3x while earnings will be marginally diluted.
  • Assuming ThaiBev’s shareholder loan to Vietnam Beverage earns pass-through interest cost of ThaiBev, and taking into account the KFC acquisition in Thailand and Grand Royal acquisition in Myanmar, we estimate net gearing could be closer to 1.5x. As a result, both Fitch and Moody’s have placed ThaiBev under review for possible downgrades to its credit ratings. 
  • Hence, in the near-term, pending clarity over any plans to deleverage its balance sheet, we believe ThaiBev’s share price is likely is likely to remain volatile. 
  • However, over the longer-term, we deem ThaiBev’s acquisition of the largest beer player in fast-growing Vietnam market to be positive and important, as part of its plans under its Vision 2020 to diversify away from business concentration in Thailand.

Long-term growth strategy intact 

  • Pending more clarity over any potential plans to deleverage its balance sheet including raising its own equity funding, we opt to keep our forecasts unchanged for now. Hence, maintain BUY with the same fair value estimate of S$1.07, as we remain positive over the long-term growth of ThaiBev, as well as on the back of the expected recovery in consumption in Thailand post-mourning period.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2018-01-11
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.070 Same 1.070