What is the news?
What do we think?
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%).
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.
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
Vietnam beer market