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Let us raise a glass to the ThaiBev listing

Nirgunan Tiruchelvam
Nirgunan Tiruchelvam12/6/2019 07:00 AM GMT+08  • 4 min read
Let us raise a glass to the ThaiBev listing
(Dec 9): Former US President Franklin D Roosevelt (FDR) helped win World War II, but his memory will ring long with beer drinkers for another reason. The US had outlawed alcohol from 1920 to 1933. This gave rise to illicit booze, which created an unmanage
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(Dec 9): Former US President Franklin D Roosevelt (FDR) helped win World War II, but his memory will ring long with beer drinkers for another reason. The US had outlawed alcohol from 1920 to 1933. This gave rise to illicit booze, which created an unmanageable crime rate, with gangsters such as Al Capone murdering with impunity. In 1933, FDR ended Prohibition to wide acclaim.

The end of the Prohibition era brought a novelty to the beer industry: cans. Canning was to the beer industry what sliced bread was to the loaf.

In those days, beer was almost exclusively sold in bottles. Beer lovers feared that the taste of beer from cans would be unpalatable. However, by 1955, most beer sold in the US was in cans. Beer consumption more than doubled from 1933 to 1955.

Southeast Asia is now at a similar juncture as the US was in the 1930s. Most beer in Asia is still sold in bottles. Bottles hamper sales. They break easily and can be difficult to ship.

Bottles are also a weight on cash flow. They belong to the brewer and are more expensive than the beer. Bottles need a refundable deposit. The sale is not consummated until the bottle is returned.

On the other hand, cans are stackable and transportable. The breakage of cans is a lot rarer than bottles. The brewer completes the sales quickly. This is the principal reason that brewers in the West have superior cash flow generation compared to emerging market brewers such as Thai Beverage (ThaiBev) and Saigon Beer Alcohol Beverage (Sabeco).

Cans are at a nascent stage in Asean. Brewers are raising canning capacity. Canned capacity may triple in a decade.

On Nov 29, the region’s largest brewer, Thai Beverage, said that it was looking to list its beer business in Singapore. It is the second-largest brewer in Thailand and controls Saigon Beer (Sabeco), Vietnam’s leading brewer.

ThaiBev’s beer business could be valued at up to US$10 billion ($13.6 billion), according to media reports. It is possible that the IPO could raise over US$2 billion, which would make it the largest IPO in Singapore since 2000. It would also vastly reduce Thai Bev’s US$6.5 billion of net debt.

Asia is the engine room of the world’s beer growth. Beer consumption is galloping at more than 6% a year in Vietnam. Vietnam’s per capita beer consumption is 43 litres, making it the third highest in Asia after China and Japan.

Vietnam’s beer business is mainly a volume growth story, but cans could be a game changer. There is also the prospect of premiumisation once prosperity rises. Vietnam’s GDP per capita is a fourth of China’s.

Asia’s effervescent beer volumes compare favourably with the tepid growth in the West. In Europe and US, brewers are stagnant.

Although the US and Europe drink about 47% of the world’s beer, the figure is shrinking in absolute terms. Germany drinks 109 litres of beer per annum, which is more than twice that of Vietnam.

However, the per capita beer consumption level has shrunk 4% in the last decade.

Beer consumption has dropped by a third in Germany since 1973, despite its being the home of the Oktoberfest beer extravaganza.

Demographics are the dampener in Europe. There are far less youthful rowdies disrupting football matches. Europe is ageing.

In the US, craft brewers are eclipsing conventional brewers. Craft brewers are indecent brewers who frequently sell onsite. Brewerkz on Clarke Quay is a craft brewer. In 2018, craft beer revenue rose 5%, while traditional brewing struggled.

Asia holds the opportunity. Beer consumption in Indonesia is just 1% of the level in Europe. Home brew, Indonesia version of craft beer, is unrecorded. Indonesia’s home brew market could be higher than the official beer market. Once conventional players such as ThaiBev expand in Indonesia, home brew drinkers could trade up.

The IPO could provide ThaiBev with the means to expand. ThaiBev controls the Chang brand, which has potential in the rest of Asean.

ThaiBev has returned 273% since its listing in 2006. There may be more fizz as beer cans sweep the region.

Nirgunan Tiruchelvam is head of consumer sector equity research at Tellimer (Exotix Capital)

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