ThaiBev + Sabeco

Recently, the share price of Thai Beverage dropped from 0.97 to 0.935 within 2 days. 

Vietnam Beverage wins 53.6% of Vietnam's largest brewer Saigon Beer Alcohol Beverage Corp (Sabeco). ThaiBev paid 109.97 trillion dong (S$6.5 billion or Thb 158 bn ) and through indirectly owned Vietnam Beverage will own 26.3% in Sabeco.

From previous post, Net Interest Bearing Debt to Equity Ratio 0.23 times in September FY17 will be increased to 1.5 times for FY 2018 after consolidating Sabeco, KFC Thailand and Myanmar Distillery acquisitions.  

The positives
1) Complete story of market acquisition - move strongly into Vietnam market
2) On its journey to fulfill its vision 2020 - Top company in F&B

The negatives
1) Overpaid for the acquisition 
2) Take on a lot of debt through all these acquisitions

Short-term wise, the market will continue to over-react, I believe the share price will test 0.91, follow by 0.89. 

All these price range provides buying opportunities.

Thai Beverage FY17 Financial Results FY Ended 30 September 2017

Thai Beverage reported Financial Results ended 30 September 2017. The last stock price closed at $0.97 with highest $0.98.

It was highlighted in the presentation from 1st October 2016, soda water business was transferred to non-alcoholic beverages business to the spirits business. The changes recognise that majority of consumers drink spirits mixed with soda water. 

The new Excise Tax Act is effective from 16 September 2017. The key change to alcoholic beverage is the tax collection method based on a suggested retail price instead of the last wholesale price. However, the excise tax calculation is based on both ad valorem rates and specific rates. 

On 20th September 2017, Moody's upgraded rating for ThaiBev from the improvement in financial profile to Baa2 Outlook Stable from Baa3 Outlook Positive.

There is marginal decrease in total sales revenue amid a full year of mourning period. Total sales dropped -0.02% to Baht 189,997 million. Spirits segment is still performing, volume +2.7% and net profit +2.1%.

There is rise in net profit (excluding F&N recognition of fair value gains on financial assets of Baht 8,497 million), net profit from normal operation increased 4.6% to Baht 26,184 million. Full year dividend payment increases from Baht 0.6/ share to Baht 0.67/ share. EPS increased 4% to 1.03 before F&N recognise fair value gains on financial assets. Net profit margin 12M16 (Oct15 - Sep16) is 11.5% compared to 12M17 (Oct16-Sep17) 12%. 

Business Segments

1. Spirits
Spirits sales revenue increases by 2.6% and net profit decreased from 18.8% to 18.7% for 12M16 compared to 12M17.

2. Beer
Beer sales revenue decreases by 4.7% and net profit increases from 5.4% to 5.5% for 12M16 compared to 12M17.

3. Non-alcoholic Beverages
Sales revenue decreases by 0.9% and net profit losses decreases from -9.3% to -5.1% for 12M16 to 12M17.

4. Food
Sales revenue for food increases by 1.5% and net profit increases from 1.3% to 1.5% for 12M16 to 12M17.

One key thing to note is non-current liabilities which went down and net bearing interest also went down from 41,026 to 30,729 for 30Sep16 to 30Sep17. Net Interest Bearing Debt to Equity Ratio decreases from 0.33 to 0.23 for 30Sep16 to 30Sep17.

Thaibev Q3 for period ended June 2017

For Spirits segment, the total sales revenue dropped -0.4% to Baht 45,284 million but net profit is still +2.4 %. Rise in net profit from normal operation excluding F&N recognition of fair value gains on financial assets is Baht 6,795 million. Recognition of F&N's fair value gains on financial assets is Baht 8,498 million. Thaibev is entering into an asset S&P with Yum Restaurant to acquire more than 240 existing and a number of developing KFC stores in Thailand. This is valued at Thai Baht 11.3 billion including VAT. This will complement ThaiBev's soft drink segment.

Beer Business
For the third quarter ended 30 June 2017, sales revenue was Baht 13,781 million, a decrease of Baht 1,051 million or 7.1%. Total sales volume of beer was 205.3 million litres, a decrease of 8.7% due to the continual effects from mourning period in Thailand. Gross profit was Baht 3,262 million, an increase of Baht 1 million, or 0.03%. This was mainly due to decrease in bottle and raw material costs, although there was a decrease of sales volume. Earnings before interest, tax, depreciation and amortization (EBITDA) was Baht 937 million, a decrease of Baht 335 million or 26.3%. This was mainly due to an increase in advertising and promotion expenses. Net profit was Baht 606 million, a decrease of Baht 311 million or 33.9%. This was mainly due to a decrease in EBITDA. 

Non-Alcoholic Beverages Business  
For the third quarter ended 30 June 2017, sales revenue was Baht 4,349 million, a decrease of Baht 187 million or 4.1%. A production and distribution agreement for an OEM sports drink was expired since August 2016 which caused a decrease in sales volume of 1.3 million litres. The continued products was 432.2 million litres, a decrease of 10.0 million litres or 2.3%. There was a decrease in sales volume of carbonated soft drink of 8.0 million litres or 10.5%, ready to drink tea of 3.3 million litres or 4.4%, Jub Jai of 2.4 million litres or 17.2% and   100 Plus of 0.8 million litres or 28.6% and other drinks of 0.5 million litres or 10.7% although there was an increase in sale volume of drinking water of 5.0 million litres or 1.9%. Gross profit was Baht 1,558 million, a decrease of Baht 143 million or 8.4%. This was mainly due to a decrease in sales.  

Earnings before interest, tax, depreciation and amortization (EBITDA) was Baht 43 million, a decrease of Baht 13 million or 23.2% from EBITDA of Baht 56 million. This was mainly due to a decrease in gross profit although there was a decrease in advertising and promotion expenses. 

Net loss was Baht 215 million, an increase of Baht 41 million or 23.6% from net loss of Baht 174 million. This was mainly due to a decrease in EBITDA. 

Food Business  
For the third quarter ended 30 June 2017, sales revenue was Baht 1,727 million, a decrease of Baht 41 million or 2.3% due to slow down consumption although there were more new stores. Gross profit was Baht 785 million, an increase of Baht 57 million or 7.8%. This was mainly due to an increase in selling price and cost efficiency. 

Earnings before interest, tax, depreciation and amortization (EBITDA) was Baht 162 million, a decrease of Baht 11 million or 6.4%. This was mainly due to an increase in rental expenses from opening new stores although there was an increase in gross profit. 

Net profit was Baht 32 million, an increase of Baht 3 million or 10.3 %. This was mainly due to a decrease in depreciation from fully depreciated asset. 

Financial Situation
Net profit excluding F&N/FCL was Baht 17,546 million, a decrease of 5.6% or Baht 1,036 million.

With the acquisition of KFC restaurants, ThaiBev will take on more debts to finance this deal, further weakened the financial position but this is a cash rich business. We feel that the acquisition will boost the revenue in the 2018 but short term wise will show some weakness. This may present an opportunity for JC Fund to acquire more shares in the company.

The Financial Ratios show Current Ratio was down as there is a decrease in cash and increase in short term loan. Liquidity to Equity Ratio was down as decrease in long term borrowings and increase in retained earnings and profit for the period.

As mentioned before, overall the business is faced with headwinds both domestically in Thailand and from international businesses as well. JC Fund is confident of the business' prospect and will continue to acquire more shares.

ThaiBev 1H17

Total sales revenue dropped by 8.4% to Baht 97,176 million. This is due to the decline in domestic consumption during mourning period. There is slight drop in net profit, the cost control lessen the effect of the mourning period to the bottom line, there is a decrease of 1.8% of net profit to Baht 14,322 million.

Beer sales revenue for 1st Half 2017 has decreased by 9.6% to 30,560 from 33,796. Non-alcoholic Beverages decreased by 2.3% from 8,373 to 8,181. Food has increased by 3% from 3,187 to 3,283. The beer revenue declined by 19.2% which is due to slowdown in ASEAN growth and International Spirits revenue declined by 22.3% due to weak sterling and Chinese spirits sales. Overall, growth is stalled.

Net interest bearing debt decreased from 41,026 in 30 Sep 16 to 38,640 in 31 Mar 17. Net Cash Flow from Operating Activities has decreased from 20,697,748 to 14,371,641. PPE increased and Free Cash Flow is still positive but decreased. Total cash equivalent 2,499,023 including 2018 cash flow from Operation and Financing if required should be able to cover for the 26,129 due by Mar 2018. Debt to Equity ratio for 31 Mar 17 has decreased to 0.48, if this can be decreased to 0.4 by end of the year will be good.

I believe the sales will pick up for 2H 2017. My intrinsic value for ThaiBev is at SGD 0.80, I will acquire near SGD 0.83-0.84. I need to acquire another 200k shares for this counter over the years.

ThaiBev 1Q17

Highlights

The fiscal year from "1 January to 31 December" is changed to "1 October to 30 September". The new fiscal year for 2016 was 9 months to 30th September 2016. The fiscal year 2017 will be 12 months from 1 October 2016 to 30 September 2017.


There is a decline in domestic consumption during mourning period in Thailand. Total sales revenue dropped 8% by Baht 4,051 million. Thaibev is dominant in spirits market. Maintain growth in net profit, net profit excluding F&N/FCL increased 12.1% to Baht 6,138 million, net profit including F&N/FCL jumped 29.1% to Baht 7,743 million. There is lower net loss in non-alcoholic segment.


Financials

The way business owners approach management is different from scholars running a corporation. Not a lot of scholars know how to run a business as they are not entrepreneurs to start with. If you look at the financial statements of Thaibev, you will realise the cost control aspect is amazing unlike our Singapore companies. The selling expenses, cost of goods sold, administrative expenses are decreased. Total expenses decreased from 44,857,176 in 2015 to 39,655,839 in 2016.


There is a consistent positive free cashflow, a constant paydown of debts for financing and the company is seating on a heap of cash. The cash is used to acquire companies like Vinamilk.


Conclusion

ThaiBev is a brilliant company. Good quarter results. The market has already reflected on this. Today the share price increases by 5%.