Regular readers will know that I always look at businesses with solid fundamentals.
And especially if you’re a long-term investor, you want to stick to businesses dominant in their industry.
Thai Beverage Public Company Limited (SGX:Y92), or ThaiBev is Thailand’s largest and one of Southeast Asia’s largest alcoholic beverage companies.
Some of its popular brands in Thailand include its signature beer, Chang Beer and Ruang Khao. At S$20 billion market cap, the company owns and sells over 200 different types of alcoholic beverages.
But that’s just the tip of the iceberg.
In Vietnam, ThaiBev dominates 40% of Vietnam’s beer market with Bia Saigon and 333, beating Heineken which holds a 25% market share.
The fact is, ThaiBev is the largest beer maker within Southeast Asia, selling over 2.4 billion litres of beer within the region.
Now, ThaiBev makes its beverages in-house.
And today, it has around 200 subsidiaries, including 19 distilleries, three breweries and 21 non-alcoholic beverage production facilities in Thailand. Overseas, the company has five production facilities in Scotland, which are known for making single malt Scotch whiskies such as Balblair, Old Pulteney and Speyburn.
ThaiBev has also one of the largest distribution networks covering over 400,000 points of sales in Thailand.
What I think impressive is this. THaiBev’s goal is to be the biggest beverage producer and distributor in Southeast Asia.
Over the last seven years, it bought over Frasers & Neaves in 2013, acquired a 75% stake in Grand Royal Group, the largest Myanmar’s whiskey market in 2017, and bought Sabeco of Vietnam in 2018. ThaiBev’s aggressive acquisitions allows it to become the dominant beverage maker.
Selling Beverages by the Financial Numbers
Like many businesses, ThaiBev has taken a hit from the Covid-19 pandemic.
Most of its beverage sales come from “on-site” consumption, which has been affected by the temporary closure of entertainment bars and restaurants. The slump in sales was caused by a fall in beer sales volume by 11%. In its latest financial year end Sep 2020, total sales was down 5.2% to THB267 billion (1 SGD buys THB 22.5).
As a result of the pandemic, ThaiBev’s shares fell 37% from its Feb 2020 highs to its March 2020 lows to S$0.54 per share.
But ThaiBev’s business fundamentals remain solid. What’s surprising here was its spirits business, which saw a rise in sales and net profits of 2.2% and 14.7% respectively, to hit THB117 million and THB22.2 million respectively.
Its spirits business contributes around 46% to the company’s total sales.
And, despite an overall drop in sales, ThaiBev’s financial year ending Sep 2020 net earnings stayed steady at THB26 billion.
What matters more for big consumer giants is, over the past 10 years, ThiaBev’s free cash flow almost tripled from THB12 billion in 2010 to THB32.6 billion in 2020.
If the company continues to gush free cash flow, it will also continue to grow dividends. So far, over the past 10 years, it grew its dividends from THB0.29 per share in 2010 to THB0.44 per share. At one point, its dividends hit THB0.62 per share.
The Thai Beverage Story No One is Talking About
The recovery for growth is on.
You see, Southeast Asia has a huge growth potential in alcoholic beverages. ThaiBev’s two biggest markets — Thailand and Vietnam have a combined population of 165 million people, which is bigger than the size of Japan. According to the Straits Times in 2017 and WHO’s Global Health Observatory Data Repository, Vietnam and Thailand are the second and third largest Asian countries which consume the most alcohol per capita. South Korean remains the top.
Both Thailand and Vietnam have a strong drinking culture. And I see both countries have young professionals with rising spending power.
They want to enjoy their alcoholic beverages. So think about how much more ThaiBev can grow.
ThaiBev has one of the best businesses in the world, simply because it sells a “habit-forming product” which gets customers to buy over again and again.
It has a leading position in Thailand and Vietnam. And its operations remained resilient despite the Covid-19 pandemic last year.
Though its shares have gained 52% since late last year, its business is still on track to grow in the region.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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