Thai Beverage -
PRICE as of 13 Nov 2013 SGD 0.54
PRICE TARGET SGD 0.75
Changes afoot, but still on solid ground
■ Fraser and Neave (F&N) shareholders approved the spin-off of its property business at their EGM on 13 November. Management is seeking a listing for Fraser Centrepoint, a separate entity that would hold the property business.
■ TCC Group controls around 90% of F&N: 62% directly and the remainder through its indirect ownership of Thai Beverage, which has a 29% stake. We expect another round of restructuring to unleash synergies worth THB 8bn.
■ In our view, the dispute with Union of Myanmar Economic Holdings Limited (UMEHL) can be resolved.
F&N EGM approves property spin-off
The spin-off requires the consent of F&N‟s bondholders to a buyback of bonds worth SGD 808mn. F&N has offered to buy back the bonds at par, with accrued interest and an additional prepayment of half of the bond‟s coupon. Today (14 November), the company will hold a vote among the bondholders. The Straits Times reported that some bondholders are displeased with the offer terms.
Another round of restructuring seems likely
We see a 75% probability of an injection of F&N‟s F&B business into Thai Bev in exchange for the latter‟s 29% stake in both F&N and Fraser Centrepoint. We have identified THB 8bn in synergy gains from the injection of F&N‟s F&B business into Thai Bev.
F&N and UMEHL in dispute over MBL
F&N has a 55% stake in Myanmar Brewery Limited (MBL). UMEHL, a government-linked entity, holds the remaining shares. MBL is the dominant brewery in Myanmar, with EBITDA of SGD 66mn in 2012 constituting about one-third of F&N‟s F&B EBITDA. F&N announced last month that it had received an arbitration claim notice from UMEHL. UMEHL believes it should have had an option to purchase F&N‟s stake in MBL before TCC Group took control of F&N. This matter is likely to be resolved amicably, in our view, as neither party would benefit from a protracted battle. We estimate MBL would account for about 47% of beer volume growth in a restructured Thai Bev.
Thai Bev’s core business remains solid
Despite short-term challenges, we expect Thai Bev‟s core spirits business to generate an operating earnings CAGR of 7% over 2014-17E. Its current valuation of 13x PER 2014E reflects a 44% discount to the regional liquor sector average, providing an attractive buying opportunity, in our view.
Publish date: 14/11/13