Thai Beverage - CGS-CIMB Research 2019-12-09: Drink On!

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage - Drink On!

Continuing government stimulus plans could help sustain Thailand alcohol consumption in FY20F.
The ongoing transformation at Saigon Alcohol Beer and Beverages Corporation (SABECO) is a compelling medium-term earnings driver.
The stock trades at FY9/21F P/E of 17.6x (below its 5-year average and peers).
Potential M&As could unlock value of businesses in the near term.

THAI BEVERAGE (SGX:Y92)'s FY9/19 revenue rose 16% y-o-y to THB267.4bn led by
1. the recovery in Thailand’s alcohol consumption, which boosted domestic spirits/beer volumes (+7.9%/7.4% y-o-y);
2. the inclusion of SABECO’s volumes in FY9/19 (c.1.9bn litres), and
3. sustained growth (+15.0% y-o-y) in the Myanmar spirits volume.
Overall, Thai Beverage’s core net profit grew c.14.0% y-o-y to THB23.3bn.

Management hopes to see continued Thai government stimulus in CY20F, which could sustain domestic Thai alcohol volume growth.
SABECO unveiled new packaging for most of its products in FY19, barring Bia 333, which it looks to relaunch by early-20F. It also underwent a slew of operational transformations (i.e. increase in ownership of an associate brewery, restructuring transportation providers, rationalising packaging costs) to improve operational efficiency.
We pencil in revenue growth of 5.7%, and coupled with operating leverage and lower finance costs, this should lead to an FY20F net profit growth of c.10% y-o-y.

Recently, Bloomberg news reported that Thai Beverage may seek an IPO of its beer assets for a valuation of up to US$10bn. The deal valuation implies an ex-debt CY20-21F EV/EBITDA of c.30-34x on our forecasted beer EBITDAs which hearkens back to the c.30x valuation range Thai Beverage paid for its c.54% stake in SABECO back in CY17, in our view.
Aims of an IPO could be to:
1. de-leverage its balance sheet (post acquisition of SABECO Thai Beverage's gearing has spiked-up); and
2. seek higher valuations for its beer business. It could also allow for any tie-ups with potential partners for the newly-listed entity.
Thai Beverage mentioned any discussions are still at exploratory or early stages.
Besides an IPO, we are unsurprised if Thai Beverage revisits its FRASER AND NEAVE (SGX:F99)/ FRASERS PROPERTY (SGX:TQ5) restructuring plans as one option to raise its non-alcoholic revenue to over-50% of Thai Beverage revenue, as envisaged in its “Vision 2020” Strategic Roadmap.
See Thai Beverage Share Price; Thai Beverage Target Price; Thai Beverage Analyst Reports; Thai Beverage Dividend History; Thai Beverage Announcements; Thai Beverage Latest News.

We like that the underlying businesses have stabilised, while market gains in SABECO are medium-term drivers. Our CY21F SOP-based Target Price is S$1.02.
Catalysts are higher revenue/margins and M&As involving SABECO/ FRASER AND NEAVE (SGX:F99)/ FRASERS PROPERTY (SGX:TQ5).
Risks are weaker revenue and margins for the domestic business and SABECO.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09

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