As ThaiBev embarks on its six year strategy roadmap, there could be more efforts towards growing its non-alcoholic beverage (NAB) and beer segments as well as international presence. Sermsuk’s recent sale of the trademark ‘est’ to ThaiBev’s international holdings company should improve the former’s financial position as ThaiBev takes on the role to build the brand. The aftermath of such brand investments for NAB may lead to a turnaround in profitability after 1H15. We also view the group’s international expansion via its beer segment as strategically important to reduce its single country risk in light of the modest growth expected for the spirits business and Thailand’s economy. ThaiBev has a viable long-term growth story and we anticipate catalysts to arise, but more visibility will be needed to give confidence. Following a change in analyst coverage, we derive a new FV estimate of S$0.77 (previous: S$0.74), but downgrade our rating to HOLD as it is currently trading near fair value.
Focus shifts to non-alcoholic bev segment
With the spirits business likely to see modest growth ahead, and further excise tax posing as threat to margins for the alcoholic segments, these could weigh on ThaiBev’s near-term performance. We like that efforts are being made towards growing its non-alcoholic beverage (NAB) segment. Sermsuk recently sold the trademark ‘est’ to ThaiBev’s international holdings company and under current agreements, ThaiBev will take on the role to build the brand and Sermsuk will continue to receive manufacturing and distribution fees. Thus we may see eventual improvements in Sermsuk’s financial performance. While keeping in mind execution risks, the aftermath of such brand investments for NAB could lead to a turnaround in profitability after 1H15.
Reducing single country risk
We seek to highlight several activities relating to the group’s presence in Myanmar. Oishi had incorporated a JV company in mar-14 for its restaurant business, while F&N launched 100PLUS and subsequently established a branch office to help expand their soft drinks business. ThaiBev was also reportedly allowed to set up Chang Beer breweries and other beverage factories in Myanmar. Although the disposal of Myanmar Brewery looms ahead for F&N, we believe that the sharing of market knowledge among the entities will allow Myanmar to remain as a key growth area. Earlier in 3Q14, international sales grew by 38% YoY on the back of stronger beer sales, with Chang beer as its core brand. A similar showing should persist going forward, with more cross selling of products in other countries like Vietnam and Malaysia.
Downgrade to Hold
ThaiBev has a viable long-term growth story and we anticipate catalysts to arise, but more visibility will be needed to give confidence. In the meantime, the bulk of earnings will still be driven by its spirits business and the local economy. Following a change in analyst coverage, we derive a new FV estimate of S$0.77 (previous: S$0.74), but with the limited upside potential, we downgrade our rating to HOLD on valuation grounds.
With the spirits business likely to see modest growth ahead, and further excise tax posing as threat to margins for the alcoholic segments, these could weigh on ThaiBev’s near-term performance. We like that efforts are being made towards growing its non-alcoholic beverage (NAB) segment. Sermsuk recently sold the trademark ‘est’ to ThaiBev’s international holdings company and under current agreements, ThaiBev will take on the role to build the brand and Sermsuk will continue to receive manufacturing and distribution fees. Thus we may see eventual improvements in Sermsuk’s financial performance. While keeping in mind execution risks, the aftermath of such brand investments for NAB could lead to a turnaround in profitability after 1H15.
Reducing single country risk
We seek to highlight several activities relating to the group’s presence in Myanmar. Oishi had incorporated a JV company in mar-14 for its restaurant business, while F&N launched 100PLUS and subsequently established a branch office to help expand their soft drinks business. ThaiBev was also reportedly allowed to set up Chang Beer breweries and other beverage factories in Myanmar. Although the disposal of Myanmar Brewery looms ahead for F&N, we believe that the sharing of market knowledge among the entities will allow Myanmar to remain as a key growth area. Earlier in 3Q14, international sales grew by 38% YoY on the back of stronger beer sales, with Chang beer as its core brand. A similar showing should persist going forward, with more cross selling of products in other countries like Vietnam and Malaysia.
Downgrade to Hold
ThaiBev has a viable long-term growth story and we anticipate catalysts to arise, but more visibility will be needed to give confidence. In the meantime, the bulk of earnings will still be driven by its spirits business and the local economy. Following a change in analyst coverage, we derive a new FV estimate of S$0.77 (previous: S$0.74), but with the limited upside potential, we downgrade our rating to HOLD on valuation grounds.
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