TRIS Rating Co., Ltd. has affirmed the company rating of Thai Beverage PLC (ThaiBev) at “AA”
with “stable” outlook. The rating reflects the robust position of ThaiBev in the Thai
alcoholic beverage industry, strong cash flow-generative ability, a sound balance sheet, and
growing non-alcoholic beverage and food businesses. ThaiBev’s sizable production base allows
it to benefit from economies of scale and offers a diverse portfolio of products through an
extensive distribution network. These strengths are partially constrained by an intensely
competitive environment, softening profit margins, and tightened regulations and
restrictions that could discourage alcoholic beverage consumption.
The “stable” outlook is based on the expectation that ThaiBev will continue to maintain its strong positions in the Thai alcoholic beverage market and its sound balance sheet with ample liquidity. ThaiBev is expected to improve the sales and profitability of the beer segment. TRIS Rating anticipates ThaiBev will continue its conservative financial policy and maintain a high credit quality. Future investments or acquisitions should be prudently considered to strengthen its business profile.
TRIS Rating reported that ThaiBev is a holding company that invests in 101 subsidiaries and associated companies, whose operations span an extensive product portfolio including spirits (both white and brown spirits), beer, non-alcoholic beverages, food, and other related businesses. ThaiBev offers a broad range of products with strong flagship brands in each product category: for example, “Ruang Khao” for white spirits; “Hong Thong”, “Sang Som” and “Blend 285” for brown spirits; “Chang” beer; “Oishi” green tea; and the “Oishi” Japanese restaurant chain.
TRIS Rating said, ThaiBev is among the biggest alcoholic beverage manufacturers in Southeast Asia and holds a strong position in the Thai alcoholic beverage industry, especially in the economy segment. ThaiBev’s assets comprise 18 distilleries and three breweries in Thailand, with annual production capacities of 1,550 million liters of beer and 819 million liters of spirits. The company also owns five Scotch whisky distilleries in Scotland and one distillery in China. The sizable production base benefits ThaiBev on the economies of scale and purchasing power for raw materials, resulting in the competitive selling prices of the company’s products. Moreover, an extensive distribution network, providing the nationwide coverage, reinforces its strong business profile. Currently, the company’s distribution network consists of 708 active agents, more than 1,300 sales persons, and 4,400 transportation vehicles, to serve more than 400,000 retail outlets throughout the country.
ThaiBev has dominated the Thai spirit market as competitors are local producers with small production base, while the imported product is available at high prices and concentrates in niche market. Solid brand names and a wide distribution network have sustained its leadership position. For the beer segment, ThaiBev is one of the two main brewers in the Thai beer market. The arch-rival of ThaiBev is the Boon Rawd Brewery Group (Boonrawd), which has a long presence in the brewing industry market under the “Singha” brand. ThaiBev and Boonrawd together control over 90% of the Thai beer market. ThaiBev’s market share is estimated at 33.5% in 2010, up from 32.5% in 2009. ThaiBev expanded into the non-alcoholic beverages and food businesses by acquiring Oishi Group PLC (OISHI) in 2008. Although at present the revenue contributions of the non-alcohol and food segments remain small, these two areas offers high potential, having grown at an average rate over 20% per annum during the past three years.
ThaiBev’s financial profile remains solid, underpinned by strong cash flows generation ability and substantial liquidity. ThaiBev reported total revenues for the first nine months of 2010 of Bt86,680 million, mainly supported by the spirits segment. The total revenues increased by 14.2% from the same period a year earlier, driven by solid growth in sales of spirits, a 41% increase in sales of non-alcoholic beverages, and improved beer sales. The operating margin before depreciation and amortization as a percentage of sales over the past three years ranged from 18%-21%. However, the margin dropped from 18.2% in 2009 to 15.8% for the first nine months of 2010. Falling margins were mainly a result of a surge in the price of key raw material, i.e., molasses and sugar, and high marketing and promotional expenses for the beer segment. Moreover, the loss from the beer operations partly cut profitability. Going forward, operating margins will be under pressure, given the high level of expenditures for marketing activities and brand building, and softening margin in the spirits segment.
TRIS Rating said, ThaiBev generated stable funds from operations (FFO) at around Bt14,000-Bt15,000 million per year during 2008-2009, and Bt9,611 million for the first nine months of 2010. The current level of FFO is more than sufficient to meet debt maturities over the next 12 months. The FFO to total debts ratio significantly increased to 123.4% in 2009 and was 67.4% for the first nine months of 2010. The leverage was considered low with the debt to capitalization ratio ranging from 18%-24% during 2008-2009. The ratio slightly increased to 20.6% at the end of September 2010, due partly to the raw material stocking. Without any huge debt-financed acquisition, ThaiBev’s financial position is expected to remain strong.
Total Thai alcoholic beverage consumption in terms of volume grew at a compound annual growth rate (CAGR) of 3% during 2004-2009. Beer consumption is more volatile than spirits consumption. The CAGR of beer consumption during 2001-2007 was 9%. However, economic downturn in 2008 led to a 4.3% drop in consumption. The economic slowdown plus a rise in the excise tax caused domestic beer consumption to shrink further by about 11.7% in 2009. Some price-sensitive beer consumers switched to local spirits instead. In contrast, total spirits consumption grew at a CAGR of 5% during 2004-2009. In 2010, according to the Office of Industrial Economics, beer consumption dropped by 2.7% from 2009. However, spirits consumption is estimated to grow at the same pace in the back of economic recovery and improving purchasing power. Overall, the Thai alcoholic beverages market is expected to grow moderately, driven by higher sales of local spirits, more promotional activities, and improving purchasing power. Tightened regulations and restrictions remain a challenge for all brewers and distillers, said TRIS Rating. -- End
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