• Reports surfaced of a potential IPO of Thai Beverage’s beer business. While there is no assurance of a deal, with the company stating that discussions are in the exploratory stages, we note that expansion and maintenance plans are on the cards for its beer segment.
• A potential IPO may also allow the segment to deleverage or introduce the unit to strategic partners.
• Maintain HOLD with an unchanged SOTP-based target price.
• Entry price: S$0.78.

What’s New

Potential IPO on the cards?

• According to a Bloomberg report on 29 Nov 19, THAI BEVERAGE (SGX:Y92) is said to be considering an IPO of its brewery business. According to the report, the listing could include Thai Beverage's beer assets in Thailand and Vietnam and may seek to value the unit at as much as US$10b.

No assurance of any deal.

• Thai Beverage has responded with an announcement, in which strategic proposals and opportunities, including but not limited to a potential listing of its beer business, are being considered, in consultation with its external advisors.
• However, discussions on such strategic projects are still at the exploratory or early stages and Thai Beverage emphasised that there is no certainty or assurance that any such transaction will occur.

Expanding brewery production and maintenance of existing breweries may provide some impetus.

• Sabeco constructed a brewery recently and its total production capacity stands at 2b litres per year. Through an indirect associated company F&N (SGX:F99), Chang Beer had also recently commenced brewing in Myanmar in Sep 19. Situated in Yangon, the brewery has an annual production capacity of 50m litres. The group’s breweries in Thailand are also of a relatively older age and may require maintenance works. The production capacity of beer in Thailand is at about 1.5b liters.

Essentials

Valuation.

• Assuming a US$10b (Bt300b) valuation and that it accounts for the segment’s interest-bearing liabilities and minority interest, we estimate this would imply 23x EV/EBITDA to our FY20F EBITDA for the beer segment. This is higher than peers’ average of 15x.
• We estimate that Sabeco is currently trading at approximately 20x EV/EBITDA. An assessment of the sensitivity in EV/EBITDA multiple and EBITDA is tabled in the attached PDF report.

Partnership in place?

• Beyond a possible expansion of production or deleveraging of the beer business, a potential IPO may also introduce AB InBev APAC to a venture into the group, given its interest in the Vietnam beer market.

Earnings Revision / Risk

• None.

Valuation / Recommendation

Maintain HOLD but with an unchanged SOTP-based target price.

• We value:
  • the spirits business at 17x EV/EBITDA, in line with global peers’;
  • the beer business at a revised 15x EV/EBITDA, in line with ASEAN peers’ average;
  • the NAB business at 2x EV/sales, a discount to peers’ 3.0x as Thai Beverage’s NAB business is still loss-making; and
  • the food business at 14x EV/EBITDA, in line with local peers’.
  • FRASERS PROPERTY LIMITED (SGX:TQ5) and FRASER AND NEAVE, LIMITED (SGX:F99), in which Thai Beverage owns 28% each, are valued based on market value.
• Entry price: S$0.78.

Share Price Catalyst

• Consumption growth from government stimulus.
• Gaining market share in the beer segment.
• M&As.

Source: UOB Kay Hian Research - 3 Dec 2019