ThaiBev

CIMB Research on 19 March 2013

OISHI is already an integral engine of ThaiBev; its combination with Fraser and Neave (F&N) and Serm Suk is now being mapped. In a recent company visit, Oishi narrated its aggressive growth plans. We also understood how Serm Suk's returnable-bottle logistics form a formidable barrier of entry.

Weaker 2012 non-alcoholic earnings were due to temporal factors and is not a concern. We tweak our FY13-14 estimates and raise our SOP (sum of parts) target price on a higher target multiple for the non-alcoholic beverage business.

Maintain "outperform" with catalysts to come from earnings delivery by non-alcoholic beverage division.

Oishi has already embarked on an aggressive growth path that is likely to generate sales growth of >20 per cent CAGR (compound annual growth rate) in the next five years. For food, the number of Oishi restaurant chains has grown by 34 per cent in 2012. Another 48 (+31 per cent y-o-y) is likely to be set up in 2013. All these are in Thailand but the group is also open to opportunities outside Thailand. For drinks, access to Serm Suk's returnable-bottle logistics network is key to its reach.

Oishi can now sell its green tea in Serm Suk's returnable bottles; the lower price points are crucial to its reach to the rural and urban poor markets. Drinks' regional expansion may also occur faster than envisioned as management leverages on F&N's distribution strength. The complementary strengths of Oishi, Serm Suk and F&N makes sense for the three entities to be strategically seen as one. Thoughts on how this will shape up are in the works.

Oishi's FY12 margin weakness was due to residual damage from the 2011 floods in Thailand. Distribution and capacity took the bulk of 2012 to return to normal and dependence on third-party facilities and distribution gnawed on margins. This is now water under the bridge. We expect margin to normalise in FY13.

Post-visit, we are more excited with Thai Bev's non-alcoholic beverage business. We raise our fair multiple on this business from 17x to 18x, still in line with regional peers. We think this still understates the value of its business given the strong barriers to entry from ThaiBev's control of Oishi, Serm Suk and F&N.

OUTPERFORM