Thai Beverage -
PRICE as of 19 Nov 2013 SGD 0.50
PRICE TARGET SGD 0.72
Solid performer could gain from restructuring
■ Thai Beverage’s (Thai Bev) 3Q13 results indicate weakening volume growth, particularly in the core spirits division.
■ We cut our 2013/14 spirits and beer volume forecasts by 4%/5% due to the excise tax hike in Thailand. We lower our 2013/14 earnings estimates by 8%.
■ Management has proposed a spinoff of Frasers Centrepoint Limited.
■ We maintain our Outperform rating, but cut our price target by 4% to SGD 0.72, implying 44% upside potential.
Core net profit up 36% YoY, but down 23% YoY excluding F&N gain and income
In 3Q12, Thai Bev logged a THB 12.7bn one-off gain related to the F&N acquisition. 3Q13 net profit includes income from its associate stake in Fraser & Neave (F&N). Also, Thai Bev’s non-alcoholic beverage segment recorded a 52% YoY drop in sales in 3Q13. This was due to Serm Suk’s termination of the Pepsi bottling arrangement in November 2012.
Stripping out F&N, Thai Bev’s net profit would have fallen 23% YoY to THB 3.7bn in 3Q13, from THB 4.8bn in 3Q12.
Higher excise taxes passed on to customers
The spirits segment is responsible for most of Thai Bev’s profit. New excise taxes took effect from 4 September 2013, raising excise tax costs 25% for white spirits, 17% for compounded spirits, and 4% for brandy. Despite the tax hike, Thai Bev’s spirits business recorded revenue growth of 7% YoY in 3Q13. However, we expect Thai Bev’s volumes to take a hit from 4Q13 onwards.
Accordingly, we lower our 2013/14 forecasts by 8% each, in line with our reduced volume expectations for the spirits and beer businesses.
Another round of restructuring seems likely if the F&N property spinoff is completed
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 potential synergy gains from the injection of F&N’s F&B business into Thai Bev. F&N’s bondholders have been offered 100% of the principal, plus the accrued interest and coupon, as part of the amendment to the bond terms relating to F&N’s spinoff.
Publish date: 19/11/13