Thai Beverage -
PRICE as of 23 Jan 2014 SGD 0.56
PRICE TARGET SGD 0.72
■ We consider Thai Beverage (Thai Bev) undervalued in light of two major deals in the global beverage sector.
■ We believe the listing of FCL, F&N’s property arm, has increased the prospects of a restructuring of Thai Bev and F&N.
■ In our view, the potential streamlining of F&N’s business could generate up to THB 8bn in synergy gains.
■ We maintain our Outperform rating. Our price target is 29% above the present level.
■ OUTPERFORM (unchanged)
FCL spinoff completed on 9 January, paving the way for a potential restructuring
FCL, formerly F&N’s property arm, has been separately listed on a dividend in specie (DIS) programme. The share price has risen 7% since listing. 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 F&N and FCL. We estimate there would THB 8bn in synergy gains if F&N’s F&B business were injected into Thai Bev.
Recent acquisitions in the beverage industry priced at 42% premium to Thai Bev’s valuation
On 12 January 2014, Suntory Holdings of Japan bid USD 15.9bn for Beam, the world’s seventh largest spirits producer. The deal was priced at 20.5x EV/EBITDA, which is a 56% premium to the global alcoholic beverage industry average and a 41% premium to Thai Bev’s 2013E EV/EBITDA. On 19 January, Anheuser-Busch InBev reached an agreement to reacquire South Korea’s Oriental Brewery for USD 5.8bn. The deal is priced at 11.6x EV/EBITDA, which is a 24% discount to the sector.
If one uses the multiples from the recent Beam and Oriental Brewery deals in Thai Bev’s SOTP valuation, it is worth SGD 0.88. However, the sector average multiples suggest an SOTP-based valuation of SGD 0.58. In the past five years, the sector PER valuation in the regional beverage industry has roughly doubled, while Thai Bev’s valuation has risen only 41%. Thai Bev is trading at a 41% discount to the liquor sector average in terms of 2014E PE. We expect Thai Bev’s core spirits business to generate a 2014-17 operating earnings CAGR of 7%.