Analysts have mixed views on Thai Beverage Y92 (ThaiBev) after its proposal of a non-cash share swap with parent company TCC Assets Limited. Analysts from PhillipCapital Research and CGS International (CGSI) Research are keeping their “buy” and “hold” calls respectively.
PhillipCapital has an unchanged target price of 63 cents, while CGSI has an unchanged target price of 50 cents.
The proposed share swap will see ThaiBev fully dispose of its 28.78% stake in Frasers Property TQ5 Limited (FPL) in exchange for a 41.3% higher stake in Fraser and Neave (F&N), up from 28.31% to 69.61%.
No cash outlay is involved in the transaction, with TCC Assets retaining a 17.6% stake in F&N post-swap. Following the proposed transaction, ThaiBev will cease to hold any stake in FPL.
The deal requires approval from independent ThaiBev shareholders by a simple majority at an extraordinary shareholder meeting, which is expected to be held in mid-September and completed within the same month.
In his July 19 note, Paul Chew from PhillipCapital says the transaction is “mildly positive”. He thinks the proposed share swap could reduce the earnings volatility from FPL’s development profits and investment property fair value changes.
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With the consolidation of F&N, net debt to earnings before interest, taxes, depreciation and amortisation (ebitda) is set to fall from 3.16 times to 3.02 times, while gearing will rise from 0.67 times to 0.7 times, according to Chew’s estimates.
“We doubt the operational synergies with Fraser and Neave will be material. After a decade of controlling the company under a common shareholder, we believe there would have been meaningful collaboration,” says the PhillipCapital research head.
He expects any re-rating for the stock to be limited, as contributions from F&N to ThaiBev are set to rise slightly from 5% to 11% in 1H2024, or ThaiBev’s 2QFY2024 and 3QFY2024 ended June 30.
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Additionally, Chew thinks earnings per share will rise by 4.3% pro-forma for the 12 months ended March 31.
Chew adds: “The realisation of value may be greater at Frasers Property Limited and Fraser and Neave after this price discovery process.”
The analyst notes that with FPL more tightly controlled by TCC Assets, any privatisation will now require less cash payouts to minority shareholders at ThaiBev.
On F&N, ThaiBev has since privatised two listed beverage companies, Sermsuk and Oishi, over the past 18 months. The premium paid over the last closing price was between 27% and 28%.
Meanwhile, CGSI analysts Ong Khang Chuen and Kenneth Tan say the negotiated price for Frasers Property Limited “appears fair”.
The proposed share swap will be executed at a ratio of 1.88 FPL shares for each F&N share, based on a negotiated price of $1.89 per FPL share and $3.55 per F&N share, at 136% and 231% premium to last close respectively.
Currently, the negotiated price stands at a 26% discount to the analysts’ estimated revised net asset value (RNAV), which is in line with precedent Singapore exchange-listed privatisation of real estate companies by controlling shareholders.
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However, Ong and Tan view the negotiated price for F&N as “rich” compared to regional companies, at 25 times EV/ebitda trailing 12 months, or 32 times P/E trailing 12 months.
“That said, we note that Frasers Property Limited’s attributable profit during the referenced period was relatively weak vs. recent 5 years, dragged by weak business sentiments and high interest rate environment,” write the analysts.
They add that this ongoing corporate restructuring of ThaiBev’s stake in FPL and F&N has “long been expected”.
The share swap, in the analysts’ view, could help the group morph into a regional food and beverage play, with ThaiBev potentially benefitting from operational synergies with F&N post-transaction.
Upside risks identified by Ong and Tan include better-than-expected margins on lower input costs and cost controls.
That said, prolonged macroeconomic weakness dampening sales volumes, and higher-than-expected selling, general and administrative expenses (SG&A) are downside risks.
As at 2.34pm, shares in ThaiBev are trading at 1 cent lower, or 1.98% down, at 49.5 cents.
