Thai Beverage

Thai Beverage: UBS initiates Coverage with Sell Call and $0.51 TP. House think valuations are rich and that there are specific risks ahead. Rollback of rice subsidy and recent excise tax hike could hurt spirit sales Spirit sales (ThaiBev’s key profit driver) are likely to weaken in tandem with the slowdown in broader consumer spending in Thailand. The government’s plan to lower the minimum guaranteed price of rice and the excise hike in 2012 could dampen sentiment and lower the disposable income of farmers/low-income workers who may either cut consumption or switch to cheaper home-made spirits. F&N restructuring scenarios and potential risks for ThaiBev: The underlying value at which the individual businesses are transacted during the potential restructuring of F&N could be a near-term risk for ThaiBev’s shareholders. House discuss two possible scenarios in this report. In summary, the lower the transacted value of F&N’s property business, the more ThaiBev will have to pay TCC Assets (owned by ThaiBev’s chairman) as part of the proposed restructuring of F&N. House value the spirits and beer business using DCF (terminal growth of 3% and a WACC of 7.7%) and listed subsidiaries and associates (Oishi, Sermsuk and F&N– ex S$3.28 capital reduction) at market prices. Launch ThaiBev as a UBS Key Call Sell.