Thai Beverage -
PRICE as of 23 Oct 2013 SGD 0.54
PRICE TARGET SGD 0.75
A brewing storm
■ Fraser & Neave (F&N) said a dispute has arisen with its joint venture partner, Union of Myanmar Economic Holdings Limited (UMEHL), over Myanmar Brewery Limited (MBL).
■ The dispute could complicate our restructuring thesis, wherein we see 75% probability of an injection of F&N’s F&B business (hence MBL) into Thai Beverage. We estimate that MBL contributes about one-third of F&N’s F&B EBITDA.
■ A swift resolution of the dispute would pave the way for a restructuring.
■ We reiterate our Outperform rating on Thai Beverage with a price target of SGD 0.75, which implies 39% upside.
Dispute between F&N and UMEHL over MBL
F&N has a 55% stake in MBL. UMEHL, a government-linked entity, holds the remainder. MBL is the dominant brewery in Myanmar with an EBITDA of SGD 66mn (2012), which is about a third of F&N‟s F&B EBITDA. F&N announced last month that it had received an arbitration claim notice from UMEHL, which claims that it should have had an option to purchase F&N‟s stake in MBL before TCC Group took control of F&N.
The issue complicates our restructuring thesis
We see 75% probability of an injection of F&N‟s F&B business into Thai Beverage in exchange for the disposal of Thai Beverage‟s 29% stake in F&N. We have identified THB 8bn in synergy gains from the injection of F&N‟s F&B business into Thai Beverage. We estimate that Myanmar could represent 47% of Thai Beverage‟s beer volume growth over 2013-17.
F&N plans to spin off its property business
Under the terms of the proposed spinoff, F&N shareholders will receive two shares of Frasers Centrepoint Ltd (its property arm) for every share of F&N at no cost. The IPO of Fraser Centrepoint Ltd is scheduled for the year-end. The spinoff and IPO are subject to an EGM next month and regulatory approvals.
Thai Beverage’s core business is on solid ground
We believe the removal of rice subsidy is unlikely to hurt the growth of the spirits business. We expect an operating earnings CAGR of 7% in the spirits business over 2014-17. Thai Beverage trades at a 45% discount to the regional liquor sector and at a 38% discount to the regional blended average beverage sector in terms of 2014E PER.
Publish date: 23/10/13