DBS Group Research analysts Chee Zheng Feng and Andy Sim have kept their “buy” call on Thai Beverage Y92 (ThaiBev) after the food and beverage (F&B) group conducted a series of corporate actions to unlock valuation in its beer and F&B businesses.
In Chee and Sim’s view, this could lead to a potential initial public offering (IPO) of an “F&B Co” to unlock value, deleverage at the parent company level and improve strategic focus.
“We believe the market is assigning the company a low valuation, as it is viewed largely as a low-growth spirits company. However, it has attractive beer and F&B (includes non-alcoholic beverage and food business) assets, which we believe could command a valuation premium on a standalone basis,” the analysts write in their Nov 12 report.
“For its beer operations, we believe a partnership and, or investment from a global brewery could introduce a much-needed premium brand portfolio to complement a potential IPO,” they add.
Based on the analysts’ current estimates, the F&B Co could be worth over $3.4 billion or over 15 cents per share, which is above ThaiBev’s current EV/ebitda and P/E valuation. This is given the former’s strong brands, access to sizeable Southeast Asian (SEA) markets and high growth potential, they note.
ThaiBev counts a number of alcoholic and non-alcoholic brands within its portfolio including Chang, Saigon Beer, Hong Thong, Mekhong, Grand Royal, and Oishi green tea.
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“These brands have held dominant market shares in their respective geographies in the past decade,” note Chee and Sim. “The group also has exposure in the food business and holds franchises for KFC and Starbucks in Thailand.”
Following the completion of the share swap between Frasers Property TQ5 Limited (FPL) and Fraser and Neave (F&L), the analysts have increased their FY2025 revenue and earnings estimates by 19% and 1% respectively to THB356.06 billion ($13.73 billion) and THB31 billion to include F&N’s sales.
“Key adjustments due to the F&N-FPL swap include [the] consolidation of F&N accounts, replacing associate line item related to FPL and F&N with pro-rated earnings contribution of Vinamilk and [the] inclusion of 30% minority interest in F&N’s stake owned by other shareholders,” the analysts write.
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“It should be noted that our previous earnings estimate reflected a turnaround in FPL’s business (earnings can be volatile). With the inclusion of relatively stable earnings for F&N, we have increased confidence in our FY2025 earnings estimates,” they add.
On July 18, ThaiBev announced that it was proposing a share swap between the companies, valuing FPL at $1.89 per share and F&N at $3.55 per share. The swap was completed on Sept 20.
Chee and Sim have also increased their target price estimate to 77 cents from 69 cents previously.
“We roll forward our valuation to FY2025 earnings and changed our valuation methodology from sum-of-the-parts (SOTP) to forward P/E peg given the change in corporate structure,” they explain. “We applied a 16 times P/E peg, -0.5 standard deviations (s.d.) of its 10-year average, on FY2025 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,” they add.
Shares in ThaiBev closed 0.5 cents lower or 0.96% down at 51.5 cents on Nov 15.
