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Thai Beverage kept at 'buy' by Phillip and CIMB on news of Sabeco stake bid

PC Lee
PC Lee • 3 min read
Thai Beverage kept at 'buy' by Phillip and CIMB on news of Sabeco stake bid
SINGAPORE (Dec 13): Phillip Capital and CIMB are maintaining their "buy" calls on Thai Beverage on news it is bidding for a stake in Vietnamese brewer Sabeco.
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SINGAPORE (Dec 13): Phillip Capital and CIMB are maintaining their "buy" calls on Thai Beverage on news it is bidding for a stake in Vietnamese brewer Sabeco.


See: Thai Beverage unit to bid for at least 25% of Vietnam's Sabeco

ThaiBev is the only bidder which has registered its interest for at least 25% of Sabeco, according to Bloomberg.

Foreign companies such as Heineken, Anheuser-Busch InBev, Kirin Holdings, Asahi Group Holdings and Singha Asia Holding are also reportedly potential suitors.

Vietnam is Asia’s third largest beer consumer by volume after China and Japan. The Vietnam beer market is expected to grow 4-5% per annum to 4.1 billion litres by 2020.

Sabeco is Vietnam’s largest brewer, with nearly 41% beer market share, followed by Heineken (21.6%) and Habeco (19.8%), says Bloomberg.

The brewer is owned by the country's Ministry of Trade and Industry (MOIT) with a 89.59% stake.

In a Wednesday report by Phillip Capital, analyst Soh Lin Sin says ThaiBev recently acquired a 49% shareholding interest in Vietnam F&B Alliance Investment JSC.

This could act as the vehicle for ThaiBev to bid for Sabeco as a domestic player, giving it an advantage over international rivals, says Soh.

Sabeco’s 53.6% stake sale worth at least US$5 billion ($6.8 billion) will be auctioned in Dec 18 with a minimum bid of VND320,000 each or about $19.

Assuming the acquisition of a 25% stake with a minimum bid, the acquisition could cost ThaiBev THB 36 billion ($1.5 billion) for its 12.3% stake in Sabeco, given that the bidder is ThaiBev's 49%-owned unit, according to CIMB.

"The estimated FY17-18 forecast valuation range is at a P/E about 42-38 times based on Bloomberg consensus of Sabeco's FY17-18 net profit forecasts of about THB7-7.6 billion," says CIMB lead analyst Cezzane See in a Tuesday report.

Although associate contributions for ThaiBev could increase by THB0.9 billion p.a. with the inclusion of Sabeco, the impact on ThaiBev's bottom line could be weakened by additional interest costs should borrowings be used to finance the acquisition.

Still, See is not worried given ThaiBev has cash of THB 9.9 billion, a net gearing of about 0.3 times and generates annual operating cash flows of THB20-25 billion.

While the deal looks slightly pricey, See says the acquisition should give ThaiBev access to a strong player in the market. Moreover, the acquisition is in line with the group’s ambition of being a regional beverage play by the year 2020.

Phillip's Soh says the 25% stake in Sabeco translates into associate contributions of THB0.8 million to ThaiBev, based on trailing-12-month earnings. The minimum price bid implies a trailing 12-month P/E ratio of 47.5 times, which is higher than ThaiBev’s 16.7 times and the regional peer’s market cap average of 41.3 times.

Although not be immediately accretive, Soh says the deal should be a long-term positive.

"Our target price took included our estimated potential earnings from newly acquired Myanmar’s Spirits business, as well as our assumptions of THB 36 billion new loans to fund its acquisition spree. ThaiBev free cash flows over THB20 billion p.a. can support the group’s growth and expansion plans," says Soh.

"We continue to remain positive on ThaiBev as we see 2018 as a stronger year, on better Thai consumer sentiment given the mourning period has passed, and its long-term thesis of transforming into a regional beverage play," concludes See.

As at 2.47pm, shares in ThaiBev are down 1 cent at 94 cents or 20 times FY18 forecast earnings by Phillip.

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