Thai Beverage Public Company: Something bigger brewing behind corporate actions
- Series of corporate actions in F&B business could lead to potential IPO of “F&B co” to (i) unlock value, (ii) deleverage at parent company level, and (iii) improve strategic focus
- F&B co could be worth >SGD3.4bn (> SGD )>0.15/share), above ThaiBev’s current EV/EBITDA and PE valuation, given (i) strong brands, (ii) access to sizable SEA markets, and (iii) high growth potential
- Revised FY25F earnings by +1% on inclusion of FNN as a subsidiary and exclusion of FPL post share swap
- Lift TP to SGD0.77 as we peg our TP to 16x PE, -0.5SD of its 10-year average
What’s New
Something bigger brewing behind corporate actions
How will Thai Beverage be reorganised?
Misunderstood as a largely spirits-only company. We believe the market views Thai Beverage (ThaiBev) as largely a spirits company given the segment’s significant sales and EBITDA contribution of average 45% and 62%, respectively, for the last 5 years. Given the muted growth profile of the spirits segment, the market accorded a low double-digit PE valuation to the entire company.
Conglomerate with three major business units. While its sizes pale in comparison to the spirits business, beer and F&B (includes non-alcoholic beverages [NAB] and Food business) are underappreciated businesses within the company with potential for value-unlocking. Overall, we view the company as a conglomerate with three major business units: Spirits Co, Beer Co, and F&B Co (refer to Diagram 1 for more details on envisioned corporate structure).
Focus has been on Beer Co; time to highlight F&B Co. We explored the potential of its Beer Co in a prior report, Who could tie the knot in the Golden Peninsula?, and are now exploring the potential of its F&B Co, which we believe has remained under the radar.
Why do we believe there’s more to F&B co than meets the eye?
Recent share swap likely part of a master plan to realise value of NAB and food operations. Over the last two years, Thai Beverage (THBEV) has conducted a series of corporate actions (detailed below) with regards to its NAB and Food business, which we group under F&B. We believe the recent share swap is just the beginning of this series of corporate actions.
Timeline of corporate actions with regards to NAF&B operations
March 2023 – Oishi Pcl privatisation: In Mar 23, the company launched a tender offer and acquired an 18.8% stake in Oishi Group Public Company Limited (Oishi), a Japanese tea and restaurant subsidiary listed in Thailand, leading to its delisting. The transaction cost the company THB4.2bn, at THB59/share, c.18.4x FYE Sep 22.
July 2024 – Serm Suk Pcl offer: In Jul 24, the company launched a tender offer for a 35.3% stake in Sermsuk Public Company Limited (Sermsuk), its NAB subsidiary listed in Thailand. The transaction is still ongoing and is expected to cost THB5.9bn, at THB63/share, c. 68x FYE Sep 23.
July 2024 – FNN-FPL share swap: Subsequently, in Jul 24, the company launched a share swap between itself and its major shareholder, TCC Assets Limited. On 20 Sep 24, THBEV completed the swap of its 28.3% stake in Frasers Property Limited (FPL) valued at SGD1.88/share for a 41.3% stake in Fraser and Neave Limited (FNN) valued at SGD3.55/share. Post transaction, ThaiBev now owns 69.7% of FNN.
We believe these series of transactions consolidate its NAB and food segments to form a regionally diversified portfolio, which would be appreciated in the open market by investors. Accordingly, we believe the endgame could point to a F&B Co IPO to unlock its underappreciated value for shareholders.
What are the benefits of listing F&B Co?
We believe there are three key benefits to listing F&B Co as a separate entity:
- Unlock value: We believe the business remains undervalued, especially with regards to Fraser & Neave Limited (Singapore), which is below the market value of its 55.5% equity stake in Fraser & Neave Holdings Bhd and 20.4% equity stake in Vinamilk (more details on F&B Co’s potential valuation below).
- Deleverage at parent co level: While we believe current debt level at Thai Bev level is manageable, at 3.2x net debt to EBITDA, deleveraging down to 2.5x would provide more headroom to improve shareholder returns through measures like higher dividend payout.
- Strategic focus: As a standalone entity, the F&B business could be more focused in terms of operations and strategic plans including expansion plans.
What’s it worth?
Based on peer valuations, F&B Co could be valued at a reasonable range of between SGD3.4bn to SGD3.9bn. We estimated that F&B co could deliver revenue of THB97.5bn (~SGD3.8bn), EBITDA of THB11.4bn (~SGD446mn), and net income of THB3.4bn (~SGD135mn) in FY25F. Accordingly, we applied a sum-of-the-parts (SOTP) PE methodology and EV/EBITDA methodology to derive our range of valuation (refer Tables 1, 2, and 3 for more details, and Diagram 2 for the valuation range).
Value to be unlocked if listing valuation is above ThaiBev’s current valuation. Value would be unlocked should the company be listed at above ThaiBev’s current forward EV/EBITDA of 9.2x and forward PE of 10.6x. We believe this is highly probable, given its close peers in the region are trading above this level and F&B Co’s unique value proposition, which we elaborate on later in this report.
Why do we believe F&B Co can trade at a premium to its peers?
We believe F&B Co can trade at above the median peer valuation due to its: (i) strong brands in multiple NAB and diary categories, (ii) distribution channels throughout major Southeast Asia (SEA) countries except Philippines, and (iii) high growth potential in underpenetrated emerging markets.
Strong brands in multiple categories – F&B Co has brands which are well established within the SEA region. In the NAB category, it has Oishi, Seasons, Fruit Tree, and 100Plus. In the diary category, it has Nutrisoy, Magnolia, F&N, and Farmhouse (refer to Appendix for more details on brand strength in various countries).
Distribution channels across key SEA regions - F&B Co has presence across key regions in SEA including the five largest economies – Indonesia, Thailand, Singapore, Malaysia, and Vietnam – as well as emerging economies like Myanmar, Cambodia, and Laos. We estimate the combined total market opportunities for dairy, juice, ready-to-drink (RTD) tea, and sports drinks categories would be sizeable at >SGD42bn (Euromonitor, 2024) (refer to Charts 1 and 2 for more details on market size).
High growth potential in underpenetrated emerging markets – Cambodia, Myanmar, and Laos stand out as emerging economies with the relevant categories growing at a healthy 12% CAGR from 2019 to 2024 (refer to Chart 2 for more details).
Changes to earnings estimate post FNN-FPL share swap
Following the FNN-FPL swap, we made key adjustments, including (i) consolidation of FNN accounts, (ii) replacing associate line item related to FPL and FNN with pro-rated earnings contribution from Vinamilk, and (iii) inclusion of 30% minority interest in FNN’s stake owned by other shareholders.
Accordingly, FY25F revenue and earnings up by 19% and 1% with consolidation of FNN’s accounts. While earnings are 1% higher than our previous estimate, it should be noted that our previous earnings estimate incorporated a turnaround of FPL’s business (earnings can be volatile). With the inclusion of relatively stable earnings from FNN, we have increased confidence in our FY25F earnings estimates.
Maintain BUY with higher TP of SGD0.77. We roll forward our valuation to FY25F earnings and changed our valuation methodology from sum-of-the-parts (SOTP) to a PE peg given the change in corporate structure. We applied a 16x PE peg, -0.5SD of its 10-year average, on FY25F earnings. We believe the company is due for a valuation re-rating with the unlocking of value in its underappreciated beer and F&B segments.
Decent dividend in the meantime. The F&B Co’s IPO could take time given the need for restructuring. Nevertheless, investors stand to enjoy a decent ~5% yield in the meantime, until value is unlocked in the next one to two years.
| FY Dec | 2Q2019 | 1Q2020 | 2Q2020 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 69,992 | 75,680 | 61,411 | (12.3) | (18.9) |
| Cost of Goods Sold | (49,569) | (54,045) | (42,787) | (13.7) | (20.8) |
| Gross Profit | 20,423 | 21,635 | 18,624 | (8.8) | (13.9) |
| Other Oper. (Exp)/Inc | (11,392) | (11,231) | (10,685) | (6.2) | (4.9) |
| Operating Profit | 9,030 | 10,404 | 7,939 | (12.1) | (23.7) |
| Other Non Opg (Exp)/Inc | 164 | 295 | 483 | 194.5 | 63.4 |
| Associates & JV Inc | 675 | 1,319 | 860 | 27.5 | (34.8) |
| Net Interest (Exp)/Inc | (1,600) | (1,401) | (1,391) | 13.0 | 0.7 |
| Exceptional Gain/(Loss) | 5.48 | 0.00 | (44.7) | nm | |
| Pre-tax Profit | 8,275 | 10,618 | 7,846 | (5.2) | (26.1) |
| Tax | (1,518) | (1,405) | (2,270) | 49.6 | 61.6 |
| Minority Interest | (967) | (790) | (624) | 35.4 | (21.0) |
| Net Profit | 5,790 | 8,423 | 4,952 | (14.5) | (41.2) |
| Net profit bef Except. | 5,785 | 8,423 | 4,997 | (13.6) | (40.7) |
| EBITDA | 9,869 | 12,019 | 9,282 | (5.9) | (22.8) |
| Margins | |||||
| Gross Margins (%) | 29.2 | 28.6 | 30.3 | ||
| Opg Profit Margins (%) | 12.9 | 13.7 | 12.9 | ||
| Net Profit Margins (%) | 8.3 | 11.1 | 8.1 |
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