SINGAPORE (Jan 11): OCBC Investment Research says Thai Beverage is likely to see its share price remain volatile in the near term, amid concerns over a spike in its net gearing.
ThaiBev is expected to see its net gearing surge to 1.3 times, from the current 0.2 times, as the result of the acquisition of Vietnamese brewer Sabeco for nearly US$5 billion ($6.8 billion).
See: ThaiBev's unit seeks to buy a near US$5 bil stake in Sabeco
The Sabeco 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.
“Assuming ThaiBev’s shareholder loan to VB 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,” says OCBC lead analyst Eugene Chua in a report on Thursday.
See: Thai Beverage to acquire KFC stores in Thailand for $462 mil
See: Thai Beverage acquires Grand Royal distilleries in Myanmar for $1 bil
Over the longer term, however, Chua believes the Sabeco acquisition will give ThaiBev a push as it aims to raise revenue contribution from outside of Thailand as well as diversify from alcohol.
“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,” say Chua.
For now, OCBC is keeping its “buy” call on ThaiBev with an unchanged fair value estimate of $1.07.
“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,” says Chua.
As at 11.49pm, shares of ThaiBev are trading half a cent higher at 93.5 cents, implying an estimated price-to-earnings ratio of 21.6 times and a dividend yield of 2.7% for FY18.