January 11, 2018

Thai Beverage PLC (ThaiBev) announced last month that it won the bid to acquire 343.6m shares (or 53.6% equity stake) in Sabeco, at VND320,000/share, translating to an aggregate cost of THB156b (~US$4.8b), which will initially be fully financed by ThaiBev. On a pro-forma basis, assuming the acquisition had been done at beginning of FY17, ThaiBev’s net gearing will increase significantly from 0.2x to 1.3x while earnings will be marginally diluted. As a result, both Fitch and Moody’s have placed ThaiBev under review for possible downgrades to its credit ratings. Hence, in the near-term, pending clarity over any plans to deleverage its balance sheet, we believe ThaiBev’s share price is likely to remain volatile. However, over the longer-term, we deem ThaiBev’s acquisition of the largest beer player in fast-growing Vietnam market to be positive and important, as part of its plans under its Vision 2020 to diversify away from business concentration in Thailand. Pending more clarity over any potential plans to deleverage its balance sheet including raising its own equity funding, we opt to keep our forecasts unchanged for now. Maintain BUY with the same FV of S$1.07 by OCBC Investment Research. Share price closed at S$0.930