• Tapping into Vietnam’s US$6.5bn beer market via acquisition of over 25% of Sabeco
• Sole bidder with advantage via Vietnamese-incorporated associate
• 25% stakes in Sabeco costs at least THB36bn, an implied trailing PER of 47.5x
• Maintain Buy with SOTP-derived TP of S$1.18

What is the news?

• 6% of Sabeco’s stake sales worth at least US$5bn will be auctioned in 18 Dec-17. Minimum bidding price will be at VND320,000/share.
• Currently, ThaiBev is the only bidder who has registered their interest for at least 25% of Sabeco.
• Foreign companies such as Heineken, Anheuser-Busch InBev, Kirin Holdings, Asahi Group Holdings and Singha Asia Holding are also potential suitors.

What do we think?

• A direct access into the high growth potential beer market in Vietnam

Vietnam is Asia’s third largest beer consumer by volume after China and Japan. The Vietnam beer market is expected to grow 4-5% per annum to 4.1bn litres by 2020.

Sabeco is Vietnam’s largest brewer, with nearly 41% beer market share, followed by Heineken (21.6%) and Habeco (19.8%).

• Advantage to bid via Vietnam-incorporated company

ThaiBev has recently acquired a 49% shareholding interest in Vietnam F&B Alliance Investment JSC. It will act as a the vehicle for ThaiBev to bid for Sabeco as a domestic player, giving it an advantage over international rivals.

Foreign ownership is capped at 49%. Given that 10% is already in the hands of foreigners (including Heineken’s 5%), foreign ownership is now limited to 39%. This also implies that at least 15% on offer will strictly be for domestic companies. ThaiBev could compete for this 15% stake via its Vietnamese associate.

• May not be accretive but could be long-term positive

Sabeco reported a strong earnings growth of 31.3% YoY to VND4.48tn in 2016. However, 9M17 earnings dipped by -4.4% YoY.

25% stakes in Sabeco will costs over THB36.15bn (VND1,000 = THB1.44) and translates into associate contributions of THB0.8mn to ThaiBev (based on trailing-12M earnings). The minimum price bid implies a trailing-12M PER of 47.5x, which is higher than ThaiBev’s 16.7x and the regional peer’s market cap average of 41.3x.

Habeco is also trading at a high valuation of 40.7x as investors priced in the long term positive drivers for Vietnamese beer market. Vietnamese government is also looking to divest stakes in Habeco, but no details have been released yet.

Maintain Buy with SOTP-derived TP of S$1.18

Our TP took included our estimated potential earnings from newly acquired Myanmar’s Spirits business, as well as our assumptions of THB 36bn new loans to fund its acquisition spree. ThaiBev free cash flows over THB20bn p.a. can support the Group’s growth and expansion plans.

Any acquisition navigating the Group closer towards realizing Vision 2020 in becoming a stable and sustainable ASEAN leader in beverage could act as a catalyst for re-rating.

A Look into Sabeco

• Largest brewery in Vietnam with a high and stable market position of over 40% share in domestic beer market.
• Strong position in the mid and low-end segment and penetrating into the high-end segment. Signature beer brands include 333 (economy), Saigon Export or red Saigon (economy), Saigon Lager or green Saigon (mainstream), Saigon Special (premium).
• One of the brands in Vietnam that has minimal control by major international brewers. Heineken owns 5% of Sabeco; Carlsberg owns 17% of Habeco.
• As of end-2016, it has 23 beer factories across the country with a total annual capacity of 1,800mn litres. This compared to Habeco and Heniken’s 800 million litres and 750 million litres each.
• It has 11 trading companies for domestic distribution via both on-premise and off-premise channels. The company also exports to 27 countries (under 333 Export and Saigon Export brand).

Vietnam beer market

• Favourable macro drivers for beer market. Vietnam has over 90mn population consuming 3.8bn litres of beer in 2016. With young population, rising affluence, coupled with high beer consumption per capita, Vietnam is considered as one of the most attractive markets. The changing demographics also imply a shift from mainstream to premium segment.
• High Special Consumption Tax. Raised from 50% in 2015 to 55% in 2016, and expected to increased to 60% in 2017 and 65% in 2018.
• Despite the tax burden, Ministry of Industry and Trade in Vietnam expects beer production to reach 3.988bn by end-2017, up 10% YoY. The Ministry also forecasted production to reach 4.1bn litres and 5.5bn litres in 2020 and 2035, respectively.