SINGAPORE (Oct 16): RHB is maintaining its “buy” call on Thai Beverage (ThaiBev) with a target price of $1.12.
This comes on the back of the group’s acquisition of a 75% stake in two Grand Royal spirits production facilities – Myanmar Supply Chain (MSC) and Myanmar Distillery (MDC) — for a total consideration of US$742 million ($1 billion).
See: Thai Beverage acquires Grand Royal distilleries in Myanmar for $1 bil
In a Monday report, analyst Juliana Cai says, “This acquisition marked the return for Thai Beverage (ThaiBev) back to the alcohol market in Myanmar, after Fraser & Neave (F&N) sold its stake in the Myanmar Brewery in 2015.”
The analyst estimates that ThaiBev paid the equivalent of 36 times price-to-earnings (P/E) for the acquisition, and believes that this is high relative to the group’s current P/E of 22 times.
However, Cai thinks that this valuation is in line with other alcohol players in the emerging markets.
As compared to other non-Muslim Asian countries, Myanmar’s per capita consumption of spirit is very low. But according to BMI Research data, a 9% CAGR is expected for the volume of spirit consumption over the next five years.
The analyst believes that this acquisition will also give the group a strong distribution network to export its portfolio of alcohol products to emerging markets.
In addition, this acquisition happened shortly after the group’s acquisition of the KFC franchise and Spice of Asia Thailand.
See: Thai Beverage to acquire KFC stores in Thailand for $462 mil
See also: ThaiBev acquires 76% stake in restaurant chain for $4.7 mil
“We view these acquisitions as in line with the group’s 'Vision 2020' to raise revenue contribution from outside of Thailand and diversification from alcohol in excess of 50%,” says Cai.
In Thailand, the cremation of King Rama IX is expected to be held in end-October, to which a recovery in alcohol consumption is expected in FY18 after a year of mourning.
“Coupled with a potential margin expansion in the spirits segment and the foray into Myanmar, we remain positive on the near-term outlook of ThaiBev,” says Cai.
As at 9.40am, shares in ThaiBev are trading 2 cents higher at 96 cents or 4.13 times Sept 2017F book with a dividend yield of 3.6%.
