Thailand: Thaibev expected to take a step closer to becoming regional beverage player after restructuring

CIMB is maintaining its “add” call on Thai Beverage with S$1.07 target price, on expectations the company will take a step closer to becoming a regional beverage player once F&N and Frasers Centrepoint’s restructuring are completed by September, The Edge Markets reported on March 24.

The corporate revamp of Thaibev’s 28% stake in both F&N and FCL has long been expected. This involves Thaibev divesting its FCL stake and buying a bigger F&N stake.

According to CIMB, the difference this time round is management is sounding quite confident that the restructuring is expected to be completed by Sept 2017 although details have so far been scant.

With the restructuring, Thaibev will no longer be viewed as a “one product one country” company. It will be on the verge of evolving into a regional beverage player which will help to re-rate the sock.

In a report on March 22, analyst Jonathan Seow says the most likely scenario is to first divest FCL and use the proceeds to enlarge the group’s stake in F&N.

The next step is F&N’s inorganic expansion into Vietnam through Sabeco. This is in line with the group’s Vision 2020 of deriving more than 50% of its revenue from both non-alcoholic beverages and outside Thailand.

This means F&N will be able to push products across channels and countries.

“We think an important consideration will be the P&L impact from restructuring F&N/FCL, which currently combine to form about 14% of group net profit,” says Seow.

Seow says FCL is more profitable than F&N and estimates the net impact from restructuring F&N/FCL will be a 9% decline in group net profit.

This leads CIMB to believe that the group will look at inorganic opportunities to mitigate the earnings shortfall.

“We estimate it will be able to swallow a US$1.5-2 billion (S$2.1-S$2.8 billion) acquisition. For perspective, Sabeco’s market cap is US$5.8 billion,” says Seow.

24 March, 2017