What You Need To Know About Thai Beverage Public Company Limited

Thai Beverage Public Company Limited (SGX: Y92) (Y92 0.88 -0.01 -0.57%) or “Thai Bev” for short, is Thailand’s largest beverage company. It has distilleries in Thailand, Scotland, Ireland, China, and France. It is listed on the Singapore Exchange and carries a market capitalisation of S$22.2 billion as at June 2017. The company has four core segments – spirits, beer, non-alcoholic beverage, and food.

Consumer companies have always been a favourite of ours. This is because many consumer staple companies tend to have a very defensive business model with a stable customer base. So, is Thai Beverage Public Company Limited a great consumer company as well? Let us find out. Here are 7 things you need to know about Thai Bev.

Stock Information

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TICKER SYMBOL: SGX: Y92

MARKET CAP:

SECTOR: 

INDUSTRY:

The Business

Thai Bev owns and operates 18 distilleries, 3 breweries and 11 non-alcohol beverage production facilities. Some of their well-known alcoholic brands include Ruang Khao, SangSom, Mekhong, Hong Thong, Blend 285 and Chang Beer. It’s also famous for single malt scotch whiskeys such as Balblair, Old Pulteney and Speyburn. Lastly, in the non-alcoholic beverages segment, it spots the following brands in its stable, Oishi green tea, est Cola and Crystal drinking water.

thai beverage 1

Source: Half year 2017 results presentation

Spirit Contribution

As seen from the diagram attached above, the spirits business is the biggest revenue and profit contributor for the group. For the first half ended 31st March 2017, revenue came in at THB 55.2 billion while profit came in at THB 10.65 billion.

This was a drop of 9.2% and 9.7% respectively compared to the prior year. The drop in revenue was attributed to the mourning period that Thailand was observed due to the passing of the country’s King. Such a tragic event is just a short-term issue for the company and demand should pick up in subsequent quarters.

Beer Contribution

The beer segment is the second revenue and profit contributor. This segment reported revenue of THB 30.6 billion and profit of THB 2.18 billion. These were again lower compared to the same period last year. The drop in revenue was attributed to the same reason mentioned above, however, profits were 3% higher. This was due to the decreased raw material and bottle cost for the company during the period. This was partly offset by higher advertising spend to capture more market share. Thai Bev’s beer business turned profitable only in the last year. Before that, it faced tough competition from other brands. To combat that, it redesigned its packaging to one that is more appealing and has stepped up its advertising effort. These efforts seem to have paid off for the company, and in my opinion, it shows that management is capable of making strategic decisions to reposition itself as the market changes.

Others Contribution

Next, moving to non-alcoholic beverages, this is still a small segment for the company at the moment and it is also loss making. For the first half of the year, the segment reported revenue of THB 8.18 billion but profit came in at a negative THB 511 million. While the company is still losing money, the losses have been decreasing steadily over the past few quarters. This might indicate a more positive outlook for this segment in the future.

Lastly, food is the smallest segment for the company, it contributed a revenue of THB3.28 billion in the first half of 2017 and had THB 40 million in profit. This segment also saw a year-on-year decline in profits while revenue inched up slighted. This was due to increase in sales for the companies’ restaurants.

Overall for the first half of 2017, Thai Bev reported revenue of THB97.2 billion and a net profit of THB 14.32 billion, making it one of the most profitable beverage companies in Southeast Asia.

Investor Relations

Investor Relation Material:

Thai Beverage Public Company Limited

Sangsom Building, 14 Vibhavadi Rangsit Road, Chomphon,
Chatuchak, Bangkok 10900 Thailand
Tel: +66(0)2 785 5555
Fax: +66(0)2 272 3026

Email: ir@thaibev.com

Top Shareholders (2nd August 2016)

  1. Siriwana Co., Ltd. 45.27%
  2. The Central Depository (Pte) Limited 38.05%
  3. Maxtop Management Corp. 10.95%

Financials

Key Opportunities

International expansion

Thai Beverage has a Year 2020 plan to expand its business to international markets. Currently, Thai Beverage derived more than 95% of its profit in Thailand. It intends to derive at least 50% of its revenue from international markets by 2020. In my opinion, this is a good strategy by the company, this is because, within Thailand, the company will have limited growth opportunities considering the fact that it is already one of the market leaders in Thailand.  As such, overseas expansion is something the company should focus on. Should it succeed, it has huge growth ahead of it.

Turning non-alcoholic segment profitable

Thai Beverage’s non-alcoholic segment has been seeing reducing losses over the last couple of quarters. If the trend continues, this segment can turn profitable soon. At the moment, it is profitable on an operating profit basis. This means, once operating profits can cover fixed costs for the segment it will be profitable on a net profit basis.  In my opinion, once Thai Beverage can work outs its costs and increase its sales, this segment can be a regular profit contributor for the group. Given that the non-alcoholic segment has a much larger addressable market than alcoholic drinks, the potential is immense for the company.

Key Risks

High debt levels

Thai Bev has been on an acquisition spree the last few years. Its biggest purchase was the controlling stake of Fraser and Neave Limited (SGX: F99) (F99 2.39 +0.02 +0.84%a few years back. This caused its debt level to increase significantly. Currently, its interest-bearing debt to equity ratio stands at 0.33, that is relatively high. The company is doing a good job on this front as it is trying to reduce its debt systematically every quarter.

Stiff competition

Thai Beverage is not the only alcohol maker here in Asia. It faces stiff competition from companies in China and even other countries such as Europe. These companies are also increasing looking at expanding overseas, to capture new under-penetrated markets. This means that Thai Bev has to ensure that its products meet the requirements of consumers in international markets if it wants to have a good chance of succeeding overseas.

Valuation

Thai Bev currently trades at a Price to Earnings (P/E) ratio of 19.4 and spots a 2.7% distribution yield for its investors. Both metrics are higher when compared to its five-year average of 17.8 P/E ratio and 3.2% distribution yield. The higher valuation might suggest that investors are now more optimistic about the growth of the company going forward.

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ketz’s personal capacity and do not in any way represent those of his employer and other related entities. Ketz does not own any companies mentioned.

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