Thai Beverage

Thai Beverage: CIMB initiates coverage with Buy Call and $0.60 TP. House believe that Thai Bev today is a different entity from what it was in the past few yrs. They are no lnger just a domestic alcohol company but is fast becoming a leading beverage player in South East Asia led by their emerging non alcoholic beverage business. This is a new business driven first by their acquisition of Thailand’s largest beverage distributor, Serm Suk, last year, as well as a more recent 29% stake in F&N. Now, Thai Bev has an extensive beverage distribution network domestically and regionally. As a mark of this division’s growth, non-alcoholic drinks contributed 11% to earnings in 1H12, up from just 4% in FY10. Secondly, earnings will no longer be dragged down by losses in the beer business. The past few years’ losses have been narrowing and EBITDA had been positive in the last three quarters. Its spirits business is the group’s cash cow. Thai Bev is the market leader in Thailand (80% market share), with its primacy protected by advertising restrictions. Because of this, operating margins are in excess of 20%, even higher than Diageo’s whose most famous spirit is Johnnie Walker. Carlsberg operating in a similar protected duopoly market in Malaysia, are equally unable to boast such margins. At current share price, investors will only be paying for its spirits business. They will be getting non-alcoholic beverages, beer and its 29% stake in F&N for free. In addition, management has been paying out 70-80% of Thai Bev’s earnings in the past five years. Assuming a 70% payout this year, yields would be around 5.6%.