Even in challenging times, people find a reason to reach for a drink. Whether it is an alcoholic or non-alcoholic beverage, it’s simply down to preference. This enduring demand has made the drinks industry a resilient sector and few companies exemplify this better than Thai Beverage (ThaiBev).
The company’s current share price is almost double that of its IPO price of 28 cents but the listing was way back in 2006 and investors could have easily made better returns elsewhere. Their patience has been tested particularly in the past year when ThaiBev shares are down 3.57% to 54 cents as at Jan 17, even when the broader market gained, as the market’s mopey over regulatory issues and the company’s growing costs.
Yet, if recent moves are an indication, there may be reasons for ThaiBev investors to raise their glasses to cheer.
In a recent development, Thailand is set to allow liquor production by small businesses, which could chip away at ThaiBev’s market share. DBS Group Research states in a Jan 16 note that this move will have a “limited impact” on ThaiBev, which has the second-largest market share. Furthermore, a curb on alcohol advertisements is a bigger challenge for smaller players trying to gain traction.
As such, DBS, which has a “buy” call and 77 cents target price on this counter, cheers its “improving fundamentals, with pick up in Vietnam and Thailand operations” which led to the analysts projecting 13% y-o-y earnings growth in FY2025 ending Sept 30. Another reason to cheer would be value-unlocking corporate actions, namely, the possible IPO of its beer business and the potential spinoff of its F&B units.
In FY2024, ThaiBev reported earnings of THB27.2 billion ($1.05 billion), 0.8% lower y-o-y, although total revenue increased by 2.2% y-o-y to 340.29 billion baht thanks to its spirit and food businesses. For 2HFY2024, it posted sequential improvement due to a combination of factors, including tourism recovery, Thailand’s efforts to boost the economy and major sporting events. For FY2024, ThaiBev raised its full-year dividend by 3.3% to THB0.62 per share.
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What might interest investors more would be how the rejig of shareholdings last year by the Sirivadhanabhakdi family of their controlling stakes in listed entities ThaiBev, Fraser & Neave (F&N), and Frasers Property (FPL), held ultimately via TCC Assets, would pan out.
With the completion of the share swaps, ThaiBev has increased its stake in F&N from 28.31% to 69.61%, while shifting its entire stake of nearly 29% in FPL to under TCC Assets.
ThaiBev’s group chief financial officer (CFO) Prapakon Thongtheppairot explained that ThaiBev would become a “pure play” regional drinks and food player, especially with a stronger hold over F&N, which focuses on non-alcoholic beverages.
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By no longer holding FPL, ThaiBev will also be less susceptible to the volatile earnings it has been booking, given that fair value adjustments are common among property companies but not for consumer goods firms like ThaiBev, notes Paul Chew, head of research at PhillipCapital.
In a report last November, Chee Zheng Feng and Andy Sim of DBS suggested that with the share swap, ThaiBev could spin off an “F&B Co” for its own listing. By doing so, ThaiBev can deleverage, unlock value and improve its strategic focus. This new F&B Co could be worth over $3.4 billion or over 15 cents per share.
Also, the long-awaited spinoff listing of BeerCo, first flagged in 2021 but delayed multiple times, might be on the cards this year. With interest rates lower, market conditions are now more favourable. On Oct 1, 2024, Michael Chye, chief of ThaiBev’s beer product group, indicated that BeerCo’s IPO could take place in the 3Q2025 if it could decide on the share sale by last month. If the spinoff actually happens, this could be the catalyst ThaiBev shareholders are thirsting for.
