• AB InBev’s APAC unit was recently listed on the Hong Kong Exchange on 30 Sep 19. In terms of beer operations, the Budweiser APAC entity is larger in scale than Thai Beverage (SGX:Y92). Budweiser APAC is also looking to tap on the expanding premium beer segment in Vietnam, similar to Thai Beverage’s Sabeco.
• Maintain HOLD and SOTP-based target price of $0.87. Entry price: S$0.76.

What’s New

A bigger beer mug.

• Anheuser-Busch InBev’s APAC unit (Budweiser APAC) began trading on the Hong Kong Exchange on 30 Sep 19. According to its prospectus, the group is the largest and fast-growing beer company in the Asia Pacific as well as one of the most profitable Asia-based beer companies. The group has also highlighted Vietnam as a principal market of focus, targeting to tap on its high growth potential, especially in the segment of premium beer products (similar to Thai Beverage’s Sabeco).

Premium beer.

• Budweiser APAC’s second listing attempt has trended up in its initial days of trading and it is currently trading at around 21-23x 2019F EV/EBITDA according to consensus estimates. This seems to be at a premium to ASEAN peers, but slightly more comparable with Chinese beer companies.
• At current levels of 18-19x EV/EBITDA, Thai Beverage has largely tracked the valuations of spirits-based peers fairly, given its larger exposure to the spirits segment.

Stock Impact

Friend or foe?

• While Budweiser APAC intends to use all of its net proceeds from the offering to repay debts, the group also noted that it could partner with local brands in high growth markets such as Vietnam to increase its influence. It will also look out for M&A opportunities.
• Despite occupying only a small market share in Vietnam, we think that it is noteworthy that Budweiser APAC has marked the country as a “principal market”. As for a prospective local partner, it is noted that Carlsberg has been in talks to increase its stake in Habeco, while Heineken as a traditional rival, would also seem incompatible. We think this might narrow it down to Sabeco, with its 26 breweries and strong distribution network as a potential match.

Slower domestic beer volume.

• According to the Office Of Industrial Economics, industry beer volumes in Thailand posted slower growth in Jul 19 (+6.0% y-o-y) and Aug 19 (+3.9% y-o-y) vs 19.3% y-o-y growth in 2Q19.

Earnings Revision / Risk

• None.

Valuation / Recommendation

Maintain HOLD and SOTP-based target price of S$0.87.

• We value:
  1. the spirits business at 17x EV/EBITDA, in line with global peers’;
  2. the beer business at 15x EV/EBITDA, in line with ASEAN peers’ average;
  3. the non-alcoholic beverages (NAB) business at 2x EV/sales, a discount to peers’ 3.0x as Thai Beverage’s NAB business is still loss-making; and
  4. the food business at 15x EV/EBITDA, in line with local peers’.
• FRASERS PROPERTY LIMITED (SGX:TQ5) and FRASER AND NEAVE, LIMITED (SGX:F99), in which Thai Beverage owns a 28% stake each, are valued based on market value.
• Entry price is S$0.76.

Share Price Catalyst

• Successful ramp-up of Sabeco.
• Gaining market share in the beer segment.
• M&As.

Source: UOB Kay Hian Research - 3 Oct 2019