Thai Beverage

Thai Beverage: SCB Downgrading it to U/p from O/p, highlighting intensifying competition in the core spirits segment, and that Thai Bev’s dominance in the sector and outstanding ROE could be under threat from new entrants. Meanwhile, shrinking margins, lower leverage and declining asset turnover are likely to drive a secular decline in ROE. F&N’s potential loss of stake in Myanmar Brewery could also dampen restructuring prospects, which could lead to a loss in synergy gains. Following disappointing earnings in 9M14, the market is focusing on line items, with market watchers highlighting that Thai Bev’s interested party transactions are higher than royalty payments by peers. At 19.8x FY15 P/E and 15.8x EV/EBITDA, valuation is at an all-time high. SOTP suggests that a potential disposal of F&N’s stake in Myanmar Brewery will weigh on the stock, and the 11% YoY decline in 3Q14 spirits volume could signal an earnings disappointment.