Thai Beverage (ThaiBev) has reported sales revenue of 217.06 billion baht ($8.16 billion) for the 9MFY2024 ended June 30, 0.5% higher y-o-y.

 

The higher revenue was supported by revenue growth in the group&rsquo s beer, non-alcoholic beverages (NAB) and food segments, and offset by its spirits segment.

 

Ebitda for the 9MFY2024 rose by 2.2% y-o-y to 38.6 billion led by growth in beer, NAB and offset by lower ebitda for spirits and food.

 

ThaiBev&rsquo s spirits business saw sales revenue dip by 0.9% y-o-y to 92.8 billion baht as total sales volume fell by 2.7% y-o-y on the back of Thailand&rsquo s slow economic activity. Ebitda fell by 1.3% y-o-y to 23.46 billion.

 

Sales revenue for ThaiBev&rsquo s beer business rose by 0.6% y-o-y to 93.79 billion baht even though sales volume fell by 2.9% y-o-y due to the beer business in Vietnam and mitigated by &ldquo satisfactory&rdquo sales volume growth in Thailand thanks to the country&rsquo s tourism recovery. Ebitda rose by 10.2% y-o-y to 11.88 billion baht.

 

NAB saw sales revenue rise by 4.9% y-o-y to 15.55 billion baht in line with a 5.3% y-o-y growth in sales volume. The higher volume was due to brand building activities and the benefit of warmer weather. Ebitda rose by 2.5% y-o-y to 1.82 billion baht due to an increase in brand investment and marketing activities, partially offset by production efficiency gains and lower packaging costs.

 

ThaiBev&rsquo s food business reported a 5.1% y-o-y increase in sales revenue to 15.02 billion baht with the business&rsquo ongoing increase in brand visibility and accessibility from the opening of new stores. However, ebitda fell by 0.6% y-o-y to 1.44 billion baht due to rising raw material costs and operating expenses.

 

As at June 30, cash and cash equivalents stood at 46.42 billion baht.

Growth was driven by the company&rsquo s beer and non-alcoholic beverage segments

 

THAI Beverage posted a 2.2 per cent rise in earnings before interest, taxes, depreciation, and amortisation (Ebitda) to 38.6 billion baht (S$1.4 billion) for the nine months ended Jun 30, from 37.8 billion baht a year ago.

 

The Ebitda growth was driven by the company&rsquo s beer and non-alcoholic beverage segments, due to effective cost management, based on its bourse filing on Thursday (Aug 8).

 

Sales revenue for the nine months came in at 217.1 billion baht, up 0.5 per cent from 215.9 billion baht in the same period last year. The company attributed the muted growth to a challenging economic situation.

 

Ebitda of the group&rsquo s beer segment continued to demonstrate impressive growth of 10.2 per cent, driven by effective brand investment and marketing activities, the company said.

 

Sales revenue of its beer business was up 0.6 per cent on the year to 93.8 billion baht, despite a 2.9 per cent decline in total sales volume, which was impacted by weakness from its Vietnam beer business.

 

The group, however, highlighted a &ldquo satisfactory&rdquo sales volume growth in the beer business in Thailand, attributable to the recovery of tourism in the country and the benefit from warmer weather.

 

The non-alcoholic beverage business recorded a 4.9 per cent year-on-year rise in sales revenue to 15.6 billion baht in the nine months. The segment&rsquo s Ebitda rose 2.5 per cent to 1.8 billion baht, given an increase in brand investment and marketing activities, partially offset by production efficiency gains and lower packaging costs.

 

Meanwhile, its spirits business registered a sales revenue of 92.8 billion baht, down 0.9 per cent on the year, in line with a 2.7 per cent decline in total sales volume. Ebitda of the spirits segment was down 1.3 per cent to 23.5 billion baht.

 

&ldquo Nevertheless, the spirits business in Myanmar remained robust, with improved sales revenue and Ebitda,&rdquo highlighted the mainboard-listed beverage group.

Its food business saw a 5.1 per cent year-on-year increase in sales revenue to 15 billion baht during the nine months. This reflected a growing brand visibility and accessibility via new store openings, noted the group.

 

Its food segment&rsquo s Ebitda, however, decreased 0.6 per cent to 1.4 billion baht on higher raw material costs and operating expenses.

FPL and F& N are plainly undervalued, but ascribing a precise fair value to a company can be tricky

 

While this column was on a hiatus last month, Thai Beverage (ThaiBev) unveiled a proposal to offload its entire interest in Frasers Property (FPL) and increase its stake in Fraser and Neave (F& N).

 

The deal will turn ThaiBev into a more focused beverage and food group, and is expected to be immediately accretive to its earnings.

 

Yet, minority shareholders of ThaiBev may have misgivings about the significantly higher premium to market price at which the company is receiving F& N shares under the deal versus the FPL shares it is parting with.

 

The deal will also do nothing to improve the narrow free floats of F& N and FPL that have contributed to the low trading volume and deep undervaluation of their shares.

 

Before the market opened on Jul 18, ThaiBev said that it had reached an agreement with TCC Assets to exchange 1.13 billion FPL shares priced at S$1.89 each for 601.63 million F& N shares priced at S$3.55 apiece. No cash will change hands.

 

ThaiBev noted that the valuations accorded to FPL and F& N were the result of extensive, arm&rsquo s length negotiations.

 

The transaction will result in ThaiBev increasing its stake in F& N from 28.31 per cent to 69.61 per cent, and reducing its interest in FPL from 28.78 per cent to zero.

 

TCC Assets, a privately held vehicle of ThaiBev&rsquo s controlling shareholder Charoen Sirivadhanabhakdi, will increase its stake in FPL from 58.1 per cent to 86.89 per cent, and cut its stake in F& N from 58.9 per cent to 17.6 per cent.

 

Judging from the reaction in the market, the deal was more exciting for shareholders of FPL and F& N than for shareholders of ThaiBev. In particular, F& N closed 21.5 per cent higher on Jul 18.

 

FPL climbed 2.5 per cent the same day, while ThaiBev was only up 1 per cent.

 

While the proposed transaction will have no direct impact on minority shareholders of FPL or F& N, the valuations accorded to the two companies were a strong positive signal that their shares are deeply undervalued.

 

For minority shareholders of ThaiBev, the picture is more complicated. On a pro forma basis, the deal would have boosted the company&rsquo s earnings per share for the 12 months to Mar 31 by 4.3 per cent.

 

However, the valuation accorded to F& N under the deal of S$3.55 per share is 232 per cent above its last closing price on Jul 17 of S$1.07 per share. FPL&rsquo s valuation of S$1.89 per share under the deal is 136 per cent above its closing price on Jul 17 of S$0.80.

 

Are ThaiBev&rsquo s minority shareholders being shortchanged by its controlling shareholder injecting F& N shares into the company at a far higher premium to market price than it is taking FPL shares?

 

Complicated exercise

To be clear, I am not suggesting ThaiBev should have based the exchange ratio for FPL and F& N shares on their recent market prices. Those market prices plainly do not reflect the underlying value of their assets and businesses.

 

The market value of F& N&rsquo s 55.5 per cent interest in Kuala Lumpur-listed F& N Holdings alone was more than its own market capitalisation, and that FPL&rsquo s market capitalisation is barely one-third of its net asset value (NAV).

 

While such extreme undervaluation is easy to detect, ascribing a precise fair value to a company can be tricky. Different valuation models and techniques are necessarily applied to different types of companies. 

 

Peer comparisons can also be complicated, as no two companies are exactly the same.

 

ThaiBev said in its Jul 18 announcement that four segments of F& N &ndash Vietnam-listed Vinamilk, F& N Holdings, its remaining unlisted beverage and dairy businesses, and Times Publishing &ndash were valued against their peers and then aggregated to arrive at a sum-of-the-parts (SOTP) valuation for the whole group.

 

Among the companies considered to be its peers in the beverage and dairy fields were Ultrajaya Milk Industry & Trading Company, Farm Fresh, Dutch Lady Milk Industries, Yeo Hiap Seng, Carabao Group, Osotspa, and Sappe.

 

The SOTP valuation was cross-checked against a discounted cash flow valuation based on the company&rsquo s internal projections of the key businesses under F& N, interviews with management and research reports.

 

ThaiBev said that the valuation approach for FPL took into account its NAV, its recent financial statements, the market value of its stakes in its real estate investment trusts and the value of its asset management platform based on precedent transactions.

 

Also considered were the discounts to revalued NAV at which other real estate companies have been taken private in recent years, including Global Dragon, Chip Eng Seng Corp, CapitaLand, Perennial Real Estate Holdings, United Engineers and Wheelock Properties.

 

While most investors would probably not find fault with the valuation methods behind the negotiated prices for FPL and F& N, some of them might wonder if these same prices would ever have been offered to the respective minority shareholders of the two companies.

 

Further corporate action?

Having said that, ThaiBev does have a strong incentive to accept the seemingly rich effective price tag for F& N. If the deal is approved by its minority shareholders, the company will become a more focused beverage and food group.

 

Combined with the earnings accretive effect of the transaction, this could help ThaiBev garner a wider investor following and boost the market value of its shares over time.

 

As for minority shareholders of FPL and F& N, the big question is whether the proposed deal is a harbinger of further corporate action to unlock value.

 

Some patience might be required, though. ThaiBev said last month that there are currently no plans to take F& N private, and that there is merit to keeping it as a separately listed entity given its strong brand value and heritage.

 

Indeed, any immediate value-unlocking initiative that does not accord a valuation of at least S$1.89 per share to FPL and S$3.55 per share to F& N would not be a good look for ThaiBev and TCC Assets.

 

In the meantime, the narrow free floats of FPL and F& N could continue to weigh on the market values of their shares.