ThaiBev emerges as regional powerhouse

ThaiBev’s geographical and business diversification seems to have paid off. It could afford to buy a majority stake in Vietnam’s major brewer Sabeco in December 2017 for about USD 4.8 billion whereas other foreign brewers balked at the price.

The costly investment is not going to bring down the house. This is underpinned by its 2017 financial statement for the year ending September 2017. Although the year was marked by a slowdown in consumption in Thailand during the mourning period for the late king and the implementation of a new excise tax act, ThaiBev’s turnover was nearly unchanged at THB 190 billion (USD 5.9 billion) compared with 2016, while net profit rose 38 percent to THB 34.7 billion (USD 1.1 billion).

As reports ThaiBev, a decrease in beer sales of 4.7 percent and a 0.9 percent fall in non-alcoholic beverage turnover were offset by an increase in spirits revenue of 2.6 percent while the food unit was up 1.5 percent.

In order to expand its food segment, ThaiBev acquired 240 KFC outlets (formerly known as Kentucky Fried Chicken) in Thailand in August 2017 for around USD 330 million.

ThaiBev was established in 2003 to consolidate a number of leading spirits and beer businesses in Thailand. Among its 127 subsidiaries are 18 distilleries, three breweries and eleven non-alcohol beverage production facilities. The group has an extensive distribution network covering 400,000 points of sales in Thailand. Internationally, it owns five whiskey production facilities in Scotland and one distillery in China. In October 2017 it added two distilleries in Myanmar plus their supply chains to its portfolio. The acquired 75 percent stake was reportedly worth USD 750 million.

Still, ThaiBev does the bulk of its business in Thailand, where it is said to be the leader in spirits with a volume market share of 90 percent. It is the number two brewer with a 40 percent market share behind Boon Rawd/Singha at 50 percent (figures for 2016).

ThaiBev is expected to secure its leading position in the alcoholic segment over the medium term, given its strong competitiveness in terms of scale and distribution network. Thailand’s tight alcohol regulations also act as a high entry barrier.

These strengths have allowed ThaiBev to maintain a profit margin (EBITDA) of more than 50 percent in its spirits segment over the past several years, although other segments are weaker, analysts say.

Thanks to its diversification across alcoholic and non-alcoholic beverages, as well as across price points, the company has the flexibility to cater for changes in consumer tastes, regulations and economic conditions. ThaiBev's food business also generates a stable revenue stream, despite its small contribution of less than five percent of total revenue.

Analysts forecast that in 2018 ThaiBev’s EBITDA margin, as a proportion of net revenue excluding excise tax, will remain at 54-55 percent for its spirits business, 20-23 percent for its beer business and 9-10 percent for its food business, while its EBITDA margin from non-alcoholic beverages is likely to remain weak at close-to-breakeven.

Thai Bev sales and profit contributions by segment (year ended September 2017)