TRIS Rating Co., Ltd. has assigned the company ratings to Thai Beverage PLC (ThaiBev) and its subsidiary, Sang Som Co., Ltd. (Sang Som), at "A+" with "stable" rating outlooks. The rating of ThaiBev reflects the dominant position of the ThaiBev Group in the Thai alcoholic beverage market, its experienced and capable management team, and economies of scale benefiting from being the largest brewery and distiller. The rating also takes into consideration ThaiBev's strong and stable cash flow generation and an extensive distribution network. These strengths are partially offset by the intense competitive environment and regulatory risk that could slow down the growth of alcoholic beverage consumption. While the "stable" outlook for ThaiBev is based on the expectation that the company will maintain its competitiveness and its leading position in the beer and spirits market. However, the company will face high competition from both Thai beer brewers and importers of spirits due to industry liberalization, ASEAN Free Trade Area (AFTA) and Free Trade Agreements (FTA) schemes.
The company rating of Sang Som reflects its leading position in the economy segment of the brown spirits market, its strong Sang Som brand, an experienced and capable management team, as well as the group's well established and extensive distribution networks. The rating also takes into consideration Sang Som's strong financial profile. However, the rating is partially offset by the slowdown in the spirits consumption growth rate in Thailand, some cannibalization among brown spirits products within the portfolio of its parent company, ThaiBev, and the expectation that there will be increased competition from imported brown spirits as a result of the new excise tax structure. While the "stable" outlook for Sang Som is based on the expectation that the company will receive strong support from ThaiBev and will be able to maintain its leading position in the brown spirits market. Sang Som's challenge is to adjust to the more competitive environment that is the result of industry liberalization and new AFTA and FTA agreements. Sang Som's rating is limited by the rating of ThaiBev since any changes in the ThaiBev Group's policy that negatively impact Sang Som's financial and business profiles will result in rating revision.
TRIS Rating reported that ThaiBev is a holding company that controls 63 companies. The group produces and distributes a wide variety of alcoholic beverages including beer, traditional white spirits, brown spirits, admixed whisky, Chinese herb spirits and Japanese spirits. The brands in its portfolio, such as Sang Som, Mekhong, Mungkorn Thong, Ruang Khao and Crown 99 for spirits and Chang for beer, are well-known in the local market. The majority of ThaiBev's brands target the economy segment of the alcoholic beverage market, which clearly is the largest segment. ThaiBev's portfolio sales strategy, which encouraged agents to purchase the entire product portfolio, helped Chang beer vault to the top of the market within five years of its launch in 1995. Although ThaiBev has sustained its leading position in the Thai beer market, the company's beer sales have slowed after the group changed its marketing policy whereby agents purchase products individually rather than purchase the entire portfolio. As a result, Boon Rawd Brewery Group, ThaiBev's major competitor, has regained some market share. Currently, ThaiBev dominates the domestic market with a 60% market share in beer and a 74% share of total spirits market.
ThaiBev is one of the largest alcoholic beverage producers in Southeast Asia, with production capacity of 1,090 million liters per year of beer and 790 million liters per year of spirits. Therefore, ThaiBev has a certain degree of purchasing power for raw materials. Moreover, its 15 distillers located throughout Thailand give the company an advantage in terms of logistics. ThaiBev's distribution network is considered strong and extensive, comprising 2,600 agents, more than 900 direct sales persons and 400 warehouses to serve more than 260,000 retail outlets throughout Thailand. The ThaiBev management team has a proven track record, lengthy experience, and in-depth knowledge in spirits industry in Thailand. However, the group is in transition from a family-run business to professional management, and needs time to achieve results.
Sang Som was founded in 1977 as a distiller and distributor of white and brown spirits throughout Thailand. After the completion of group restructuring and the establishment of ThaiBev in 2003, Sang Som, as a 100% owned subsidiary of ThaiBev, is responsible for distilling and distributing only "Sang Som" and "Mungkorn Thong" brands. Sang Som brand has been the market leader in brown spirits in terms of sales volume since 2002, following the successful re-launch of Sang Som brand after the liquor industry was liberalized in 2000. By targeting the economy segment of the brown spirits market, Sang Som's sales volume increased from eight million liters in 2000 to 69 million liters in 2004 out of the total brown spirits market size of 250-300 million liters. For the first nine months of 2005, Sang Som's sales volume was 64 million liters. Sang Som distributes its products through ThaiBev's extensive network.
The Thai beer market has room to grow. The per capita consumption rate of 25.7 liters per person per year is considered low when compared with the top 20 beer markets around the world. Thailand's beer market has been controlled by a few producers, with a high degree of competition. Huge advertising budgets and extensive use of promotions as well as price cutting are widely used among players to stimulate sales. During the past five years, beer sales have increased by an average of 7.6% a year. However, growth in 2005 is expected to be at 2%-3% and the market is expected to grow at a low rate in the future. The change in ThaiBev's marketing policy from a portfolio sales strategy to an individual brand marketing strategy was one of the factors that slowed the beer consumption growth rate. Another factor affecting volume growth is regulatory risk. Restrictions for alcoholic drinks also slowed growth through advertising limits and sales period restrictions.
Demand in the spirits market is considered stable since domestic spirits consumption per capita stayed in the range of 8.7 liters to 9.7 liters per person per year during 1998-2004. The average growth rate of total spirits consumption was 5% per annum during 2000-2004. Brown spirits accounts for less than 50% of the total spirits market. Television advertising controls and limits on the time during which alcoholic beverages can be sold are an industry-wide threat that could limit demand growth of spirits. Furthermore, as the owner of most of the leading brands in the brown spirits market, ThaiBev will face the potential of cannibalization among its brands.
The excise tax scheme for brown spirits implemented in September 2005 raised excise taxes for Sang Som's products. Therefore, Sang Som's price will rise to reflect the new alcoholic content tax rate or price increase of Bt45 per bottle for a 700 ml bottle. This price increase will be a challenge since Sang Som's price will get closer to the prices of imported brown spirits, said TRIS Rating. - End
Thai Beverage PLC (ThaiBev) Company Rating: A+ Rating Outlook: Stable
Sang Som Co., Ltd. (Sang Som) Company Rating: A+ Rating Outlook: Stable