Thai Beverage Public Company Limited: 5 things you need to know about its business

Thai Beverage Public Company Limited (SGX: Y92) (ThaiBev) is 69.89% owned by Charoen Sirivadhanabhakdi, a prominent billionaire in Thailand. ThaiBev is one of the largest beverage companies in South East Asia. The company comprises four business segments: spirits, beer, non-alcoholic beverages, and food.

Spirits is the largest revenue contributor accounting for 61.6% of total revenue.  Besides Thai spirit brands like Mekhong and Phraya, the company also carries international brands like Old Pulteney, Balblair and Spiced Pacific Rum.

Beer is the second largest revenue contributor accounting for 25.1% of total revenue. Thai Beverage has three beer brand – Archa, Federbrau and its flagship brand, Chang Beer.

chang beer

Non-Alcoholic Beverages is the company’s newest segment to the business after the part-acquisitions of Oishi, Sermsuk, and Fraser & Neave (F&N). This segment accounts for 9.6% of total revenue. Familiar brands include 100 Plus, Oishi green tea, F&N, Nutrisoy, Seasons, Magnolia milk, and Fruit Tree juice.

The Food segment is the smallest revenue contributor at 3.8% of total revenue mainly carries Oishi brand food products.

Now that you have an overall understanding of the business, let us now move on to the five things you need to know about Thai Beverage:

1. Recession proof

thaibev revenue 2006-2015

From the chart, you’ll notice that the 2008/09 recession did not affect ThaiBev’s revenue at all. People drink in good times and drink more in sorrow. Spirits and beer contribute the majority of ThaiBev’s revenue and alcohol can be addictive as well which pretty much explains why the company’s revenue rose even during the Great Recession.

2. Stable and growing dividends

 thaibev dividend 2006-2015

Since ThaiBev listed on the Singapore Exchange in 2006, it has been paying a growing dividend for the past ten years (one of our criteria for how to pick to great dividend stocks). Dividend per share increased from 0.22 baht in 2006 to 0.61 baht in 2015.  The rising dividend per share reflects the strong cash flow generation of ThaiBev.

3. Excise tax, pricing power and diversification

The Thai government has been increasing the excise tax on alcohol over the last ten years hiking tax rates in 2007, 2008, 2009, 2012, 2013, and 2015. Every time the government increases the tax, ThaiBev has been able to pass down the cost to consumers reflecting its pricing power.

A tax hike may affect alcohol consumption at the start but consumers get use to the higher prices eventually. At the same time, ThaiBev has diversified into the non-alcoholic beverage segment with the acquisitions of Oishi, Sermsuk, and F&N in order to mitigate the excise tax hike issue.

4. Debt

 thaibev debt-equity 2006-2015

ThaiBev funded the acquisition of F&N with debt which is the reason why its debt-to-equity ratio jumped to 1.14 in 2012. After the acquisition, F&N carried out a capital reduction in 2013 and 2014 to return cash to shareholders. As a shareholder, ThaiBev received S$1.35 billion from the capital reduction exercise.

Coupled with strong cash flow generation, the company used the proceeds from the capital reduction to reduce their debt which is why the debt-to-equity ratio has fallen from 1.14 to 0.37 in 2015. A low debt-to-equity ratio is an important criterion in knowing how to pick a good stock.

5. Stakes in F&N, SermSuk, Oishi, and Frasers Centrepoint Limited

thaibev stakes

F&N, Frasers Centrepoint Limited, SermSuk, and Oishi are public-listed companies on the Singapore and Thailand stock exchanges. ThaiBev owns sizeable stakes in all of them. The combined value of ThaiBev’s stakes in these four companies is S$3.1 billion.

Victor Chng is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Victor is also the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. On a personal note, Victor represented Singapore in the 2008 TAFISA World Games in Busan, South Korea and was the 2008 IFMA World Muay Thai Championships bronze medalist, kicking some serious ass along the way.

3 Comments

  1. Pingback: ThaiBev cut to ‘hold’ by OCBC with higher fair value of 89 cents – The Fifth Person

  2. anon

    June 17, 2016 at 6:40 pm

    Hi Victor,

    Noted that Thai Bev pays dividends in THB. SGX lists their dividends net of tax in its website. Besides being subject to exchange rate fluctuations, would you know what the withholding tax rate for Thai Bev’s dividends is? Thanks.

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