Towards Financial Freedom
Thai Beverage PCL - Expect good times to roll
Investment Highlights
- Exposure to fast'growing Thai alcoholic beverage market. Thai Beverage PCL (ThaiBev) offers investors an exposure to the alcoholic beverage industry in Thailand, a fast'growing emerging market. Thailand's beer and spirits market is forecasted to grow at 1.6% and 2.2% respectively over the next 5 years, buoyed by higher consumption per capita and a growing population. To a lesser extent, ThaiBev gives exposure to the Asia Pacific alcoholic beverage market, which has grown at an astounding 9.9% 4'year CAGR, driven mainly by rising disposable incomes in the middle'income class.
- Core business is fundamentally strong. We like ThaiBev's business, which generates strong operating cash 'ows and has delivered a strong net profit growth of 42.5% yoy in 9MFY12. The Spirits segment is the anchor business of ThaiBev, being operationally strong and generating the majority of ThaiBev's profits. On the other hand, the Beer segment, which has been loss'making since 2009, has been seeing narrowing losses in the past quarters. In the non'alcoholic beverage segment, ThaiBev's acquisition of Serm Suk in 2011 has given it a wider distribution network, allowing it to better penetrate more points of sales.
- Attractive valuations; recent price correction presents an attractive entry point. ThaiBev is relatively cheaper to its peers, trading at only 15.9x PER compared with a peer average of 24.4x. We think ThaiBev deserves a higher valuation based on a potential 10'15% earnings growth, its strong brand value and its exposure to the fast'growing emerging Thai market. The recent price correction in ThaiBev could present an attractive entry point for investors seeking such exposure.
Key Risks
- Currency risks. ThaiBev's functional currency is in Thai Baht as it mainly operates out of Thailand. A depreciation in the Thai Baht against the SGD could potentially affect the capital appreciation potential of ThaiBev, which is denominated in SGD.
- Rising raw material prices.If prices of raw materials such as barley malt and molasses increase, the cost of making beer and spirits would increase, depressing gross margins.
Source: AmFraser
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