Bloomberg reported on a potential IPO of Thai Beverage’s brewery business
Earlier in the day, Bloomberg published a report which says that Thai Beverage is considering an initial public offering of its brewery business in what could be the biggest listing in Singapore in close to a decade.
The company may seek to value the unit at as much as USD10bn, raising approx USD$2-3bn from the listing. If it materializes, the IPO is likely to be the Singapore bourse’s biggest since the 2011 listing of Hutchison Port Holding Trust.
A USD$10bn valuation will also see the unit rank among the region’s largest beer companies but still a fraction of the USD$47bn market cap of recently-listed Budweiser Brewing Company APAC Ltd, the Asia-Pacific unit of AB InBev. Based on a trailing earnings basis, that valued Budweiser at more than 50x PER.
Shares of Thai Beverage initially appreciated as much as 5.2% to a day high of SGD$0.91/share before closing at SGD$0.89/share as the company calls for a share trading halt.
Street generally positive to neutral on Thai Beverage
According to Bloomberg, analysts are generally positive to neutral on Thai Beverage, with 4 positive calls, 3 neutral calls and 1 negative call on the counter.
Its latest set of FY2019 results slightly missed the street’s expectations. However, the street believes “Happy Hour” in Thailand could further extend due to stimulus measures implemented by the government to encourage spending.
While its Spirits division continues to outperform expectations and is the key driver of Group’s earnings, its beer division remains under pressure due to high-interest costs associated with the Sabeco acquisition.
Its beer division saw total attributable profit to shareholders of THB826m. This amounts to approx. USD$27.3m.
According to the Bloomberg article, the IPO deal could include ThaiBev’s beer assets in Thailand and Vietnam. Assuming that it does not include its Spirits’ assets, the valuation of USD10bn essentially prices its Beer unit at an FY19 PER multiple of 366x!
That will be an extremely positive deal for Thai Beverage to be able to dispose off part of its beer division at such high valuation multiples but not so much for investors’ partaking in the deal. Thai Beverage has a current market of USD16.4bn.
The USD10bn deal for its Beer division essentially encompasses 61% of its market cap when earnings contribution from its beer division only amounted to 3.5% of Group’s FY19 earnings.
If we exclude the financing impact, with the net profit of its Beer division at THB3.154bn (USD104m) in FY2019, that will still amount to a hefty 96x trailing PER multiple for its beer division. The only way the valuation makes sense is if its beer division’s future earnings growth is expected to double. Is the street expecting that?
Valuation probably account for previous Sabeco acquisition
Recall that Thai Beverage previously paid approx. USD$4.8bn for 54% of Sabeco. This values Sabeco at USD8.9bn, a hefty valuation to be paid at that point in time, with the market subsequently punishing Thai Bev as seen by a c.40% decline in its share price post-acquisition from late-2017 to late-2018.
The USD10bn IPO, if it materializes, seems like a huge valuation premium attached to its beer division, in our view. This likely took into consideration the premium previously paid for Sabeco.
All said and done, such a valuation will be positive for Thai Beverage in our view, assuming the market is willing to attach a USD10bn valuation to its beer division which is still a “work-in-progress” in terms of its restructuring efforts. All this assumes that its Spirits’ division is not part of the USD10bn valuation.
Conclusion
This is my initial thoughts on the Thaibev IPO deal based on the content derived from the Bloomberg article and is not construed to be fully accurate. Please do your own due diligence on this matter. I believe a confirmation from Thai Beverage management pertaining to the IPO with more details disclosed will be useful in helping the market make an informed decision.
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