Every Friday evening, I convene a gathering on Boat Quay at 6pm. Over 170 people are invited, but usually about 10 people attend.
Booking a table has become difficult. Six bars once turned me down.
The bars on Boat Quay are overflowing with people. Beer is also gushing from the taps. Beer sales are higher than in the pre-Covid era.
Deprived guzzlers are making up for lost time. There has been pent-up demand. People have missed the fizz, as well as the camaraderie.
But, the beer boom in this town is not in the bars. It is in the stock market. The opportunity lies in a stock that has been orphaned by Singapore Exchange (SGX) investors. Thai Beverage is a giant spirits and beer player in this region. It was listed on SGX in 2006, because the clergy in Thailand objected to a listing in Bangkok.
Thai Beverage dominates the Thai spirits industry. Most of its revenue came from the sale of spirits. The spirits business is steady.
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People drink whiskey in good times and bad times. Spirit sales in Thailand have weathered the ups and downs. The Thai coup in 2014, the terrorist attacks in 2016 and the Covid lockdown have not hurt spirits’ sales.
The buzz in Thai Beverage is in its beer business. It is the dominant beer player in Vietnam and Thailand. In Thailand, Thai Beverage produces the Chang brand, which is sold in distinctive green bottles. In Vietnam, the beer business consists of the investment in Sabeco.
Beer sales have been suppressed in both markets during Covid. With the reopening, there are signs of a beer boom.
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US$2 billion offering
Last week, Thai Beverage launched plans to unleash its beer potential. Its beer segment has not got its due recognition. The company now plans to spin off its beer segment through a separate listing on SGX.
The beer segment has been branded Beer Co. The IPO could raise US$2 billion ($2.8 billion) at a valuation of US$10 billion.
Beer Co’s holy grail would be Vietnam. The beer flow on Boat Quay is no comparison to that of Vietnam. Vietnamese consume beer with more gusto than any other Asian market. Vietnamese drink 41 litres of beer per capita. This amounts to almost two pints a week.
To put this into perspective, Japan consumes less beer per capita than Vietnam. Japan has a GDP per capita of US$43,000, which is 11 times’ Vietnam’s.
In the last decade, beer consumption has risen by a CAGR of 11% in Vietnam. Sabeco’s (Thai Beverage’s Vietnamese beer arm) has seen its sales triple.
Vietnam’s extraordinary thirst for beer has its roots in its colonial history. Brewing started in Vietnam during French rule. In 1875, Victor Larue, a French officer, started one of the first breweries in the region in Saigon. It initially sold beer to the French soldiers.
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The fizz to the brewery came decades later. Larue started an ice factory in 1910. The ice factory was a game-changer for the beer business. It meant that the beer could be stored for longer. It could also be served chilled. Ice-cold beer was alluring in the savage tropical heat. Vietnamese started drinking beer as a respite from the heat. The practice became ingrained in Vietnamese culture.
The beer business received another boost when American troops arrived in the 1960s. More varieties were introduced. Both the communist-controlled North and the pro-American South were captive beer drinkers.
Since “doi moi” — Vietnam’s economic liberalisation in 1986 — beer has been lightly taxed. Today, beer is cheaper than milk. A can of beer costs just 50 US cents, which is a third less than a bottle of milk. There are no restrictions on the sale of beer to teenagers. Beer drinking is a staple of family gatherings. Young females are keen consumers, as are old men.
If the listing takes place, it would imply that Thai Beverage is deeply undervalued. Thai Beverage is valued at US$12 billion, with the nonbeer segments representing 80% of the value. Thai Beverage could reduce its net debt of US$5 billion to US$3 billion. On a sum of the parts, this would imply that Thai Beverage should be worth $1.17, which is almost twice its current price.
Thai Beverage may soar on the back of a successful Beer Co listing. Its investors may join the revellers at my Boat Quay drinks.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column
