Analysts at UOB Kay Hian (UOBKH) and DBS Group Research are keeping “buy” on Thai Beverage Y92 (ThaiBev) following the company’s recently held annual information meeting and analyst meeting.
In their June 23 report, DBS analysts highlight that the long-awaited BeerCo IPO remains part of ThaiBev’s strategic value unlocking agenda, as the company actively explores multiple options to maximise value for shareholders. One such option includes an equity partnering with a global brewer.
In terms of partnership, ThaiBev is looking out for strategic fit, valuation and culture fit, the analysts say. They note that the company is aiming for early to mid-2025, when market conditions are expected to improve on lower interest rates and US presidential election uncertainty is resolved.
As such, DBS believes that the BeerCo IPO is a key share price re-rating catalyst, adding that an equity partnership with a global brewer will be key to act as an anchor valuation. The frontrunner is likely to be Budweiser APAC, with its significant investment capacity. The analysts believe that Budweiser’s APAC’s global premium portfolio would complement ThaiBev’s existing mainstream focused portfolio.
“Nonetheless, we believe Asahi should not be discounted as it has sufficient investment capacity to come in as a minority shareholder, which is preferred by ThaiBev’s management. In addition, it owns the second largest Japanese whisky company, Nikka, which has a global distribution network that ThaiBev could leverage on to grow its international premium spirits portfolio on a global scale,” the analysts point out.
Meanwhile, UOBKH analysts Llelleythan Tan and Heidi Mo point out ThaiBev’s possible divestments, as its stake in Frasers Property TQ5 has been earmarked as a non-core asset and may potentially be divested. However, they believe this is unlikely given Frasers Property’s share price being at an all-time low.
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“On the other hand, ThaiBev’s stake in Fraser and Neave (F&N) is considered a strategic investment given the operating synergies and collaborations with ThaiBev’s nonalcoholic beverages segment. However, management did mention that if the valuation was acceptable, the group would consider divesting its F&N stake,” they add.
In response to future growth drivers for the spirits segment, ThaiBev mentioned that the group has implemented a premiumisation strategy to attract a different customer profile and improve its international spirits portfolio.
UOBKH analysts note that this was driven by the recent acquisitions of Larsen cognac and Cardrona Distillery in FY2023, which boast higher margins as compared with its domestic spirits stock-keeping unit (SKUs). Despite political tension in Myanmar, ThaiBev expects Grand Royal to continue its strong performance in FY2024.
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The Vietnam Ministry of Finance recently announced plans to hike special consumption tax on beer from 65% currently to 80% by 2026 and gradually to 100% by 2030. CGS International analysts Ong Khang Chuen and Kenneth Tan note that ThaiBev believes the higher excise taxes to be imposed across all alcohol categories are fair. The company also believes the proposed implementation timeline allows sufficient time for it to strategise and prepare for the upcoming price adjustments.
"ThaiBev continues to see Vietnam as a high growth potential market given the young demographics with rising affluence given the country’s urbanisation trend. The company intends to fully pass on the higher excise tax to consumers, and sees room for market share gain should consumers choose to down-trade in view of higher alcohol prices," the analysts add.
CGSI is reiterating "hold" on ThaiBev with an unchanged target price of 50 cents as the analysts see risks from soft spirit sales volume in Thailand as well as weaker associate earnings.
UOBKH has a lower target price on ThaiBev at 57 cents compared to 70 cents previously due to the re-rating of the company’s peer EV/ebitda multiples since its last update, while DBS keeps its target price at 69 cents.
PhillipCapital's head of research Paul Chew has kept his "buy" call and target price of 63 cents after ThaiBev's annual information meeting.
"The stock used to trade at an average P/E of 18 times but now languishing at 12 times. The de-rating has been due to subdued growth. Revenue is only up 4% since pre-pandemic 2019, or a compound annual growth rate (CAGR) of 1%," writes Chew in a June 24 note.
"A combination of the pandemic, stricter regulations and weak macro have contributed to the sluggish growth," he adds.
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However, the sale of a stake in ThaiBev's subsidiary BeerCo and the divestment of Frasers Property (FPL) may potentially be a share price driver for ThaiBev, he says.
"For BeerCo, the company is open to selling a stake via [an] IPO or trade sale. The potential trade buyer is a brewer with a limited presence in Southeast Asia," he notes, adding that ThaiBev's 28% stake in FPL is deemed as "not strategic".
While selling FPL below book value is not in the interest of shareholders, Chew suggests that distributing FPL shares as dividend in specie to ThaiBev's shareholders is an "option" to consider.
As at 10.14am, shares in ThaiBev are trading at an unchanged 47 cents.
