Thailand (Photo: Sumit Chinchane on Unsplash)
12 December 2019

Why ThaiBev may spin off its beer business

Thailand | Given that valuations for pure-play brewers in Asia are higher than for brewers with a diversified beverage portfolio, it would make sense for ThaiBev to seek a separate listing for its beer interests in Thailand and Vietnam.

It will be remembered that when AB-InBev listed its Asia-Pacific unit, Budweiser Brewing APAC, in Hong Kong in September 2019, it was valued at 17 times forecasted 2020 profits (EBITDA). That was a slightly lower valuation than enjoyed by its rival, China Resources Beer Holdings, which was trading at 18.8 times. Tsingtao Brewery was trading at 13.5 times its forecast 2020 EBITDA, while ThaiBev was at 17 times.

 Apart from the brewery business, ThaiBev runs distilleries in China, Scotland, France and Myanmar. It owns about 28.5 percent of Singapore’s firm Fraser & Neave, which sells soft drinks and dairy products. It also operates several restaurant chains. In other words, ThaiBev is a diversified brewer. But take one look at its financial figures and it becomes clear that its non-alcohol investments aren’t doing too well.

The question is: will ThaiBev’s supposed listing for its beer interests really fetch a valuation of 23 times EBITDA?   

ThaiBev’s debt load

When ThaiBev bought a majority stake in Vietnam’s major brewer Sabeco in 2017, it paid a lot for it: USD 4.8 billion. This took ThaiBev’s debt load up to USD 6.5 billion. A successful IPO could help ThaiBev reduce some of its debt.

In ThaiBev’s financial year 2019 (from 1 October 2018 to 30 September 2019), Sabeco accounted for 76 percent of ThaiBev’s volume sales, reaching a total of 27 million hl.

ThaiBev’s 2019 financial year: beer is biggest contributor to sales but not to profits

Beer revenues contributed 45 percent, or USD 6 billion, to group revenues, but only 14 percent to net profits. The bulk of ThaiBev’s profits come from spirits. This suggests that beer profits leave a lot to be desired.

ThaiBev and AB-InBev in sales talk?

However, ThaiBev’s IPO may just be smoke and mirrors. Pundits suspect that it is another means to put pressure on AB-InBev, which is keen on expanding into the growing Southeast Asian beer market through acquisitions.

They believe that ThaiBev has floated the prospect of an IPO because it is unhappy with the terms offered by AB-InBev. It is a common tactic in deal talks to make the potential buyer raise its offer. Because if AB-InBev does not, the assets could disappear into public ownership.

So the real story behind ThaiBev’s possible IPO could be that AB-InBev and ThaiBev are already engaged in sales talks.

Read more about this topic: a glance at the southeast Asian beer market and Ina's report on ThaiBev rumoured to mull beer IPO in Singapore next year.

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