SINGAPORE (Oct 13): DBS is maintaining its “buy” call on Thai Beverage with an unchanged target price of $1.07 as the F&B group appears to be hitting the acquisition trail again with the purchase of a 75% stake in two Myanmar production facilities for Grand Royal whiskies for US$742 million ($1 billion).
See: Thai Beverage acquires Grand Royal distilleries in Myanmar for $1 bil
Based on ThaiBev’s announcement, the transaction would increase the group’s 9M2017 earnings per share by 1.7% to THB1.20 (4.9 cents) from THB1.18. Based on this, our back-of-envelope calculation suggests that the acquisition was done around mid-thirties PER. The transaction will be funded through internally generated cashflows and bank borrowings. As at June, ThaiBev’s net debt/equity remains healthy at 0.3 times.
Grand Royal is the largest and number one whisky player in the country. In a flash note on Friday, lead analyst Andy Sim believes the latest acquisition shows ThaiBev’s clear strategic intent to extend and diversify outside of Thailand. Furthermore, he believes there could be potential synergies to be reaped from distribution given that Myanmar is the largest export market for Chang Beer.
Sim says the acquisition also allows ThaiBev to gain a leading position in the Myanmar spirits market. According to data from Euromonitor, the Myanmar spirits market is estimated to grow by a 5-year CAGR of 7.6% from 2012 to 2017 when it should hit a total volume of 20.1 million litres.
“This implies per capita consumption of 0.4 litres, which pales in comparison to Thailand (10.7 litres) and lower than Vietnam (0.6 litres),” says the analyst.
Although ThaiBev’s share price has been relatively flat compared to the overall market, Sim notes that Thai-listed domestic consumer stocks have performed well since early September possibly on optimism of a pick-up in consumption post-mourning period. In addition, with the recent announcement for elections to be held in November 2018, Sim believes consumption should turn for the better post-Oct, and into 2018.
Shares in ThaiBev are up 1 cent at 96 cents.
