TRIS Rating Co., Ltd. has upgraded the company rating of Thai Beverage PLC (ThaiBev) to “AA” from “AA-” with “stable” outlook. The rating reflects the strong position of ThaiBev in the Thai alcoholic beverage industry, strong cash flow generation ability, growing non-alcoholic beverage and food businesses, and healthy balance sheet. Sizable production base and experienced management team allow ThaiBev to enjoy benefit from economies of scales and offer a diversified portfolio of products through an extensive distribution network. These strengths are partially offset by an intensely competitive environment, weakened beer consumption demand, fragile economic recovery and regulatory risk that could discourage the alcoholic beverage consumption.
The “stable” outlook is based on the expectation that ThaiBev will maintain its strong market position in alcoholic beverage. TRIS Rating expects ThaiBev to well balance its market share in beer segment and not to jeopardize the overall profitability. Future investment or acquisition, if any, should be prudently considered to strengthen its business profile. In addition, ThaiBev is expected to continue its conservative financial policy and maintain high liquidity at all time.
TRIS Rating reported that ThaiBev is a holding company that controls 98 subsidiaries and associated companies, whose operations engage 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 key brands in each product category: for example, “Ruang Khao” for white spirits; “Sang Som”, “Hong Thong”, and “Blend 285” for brown spirits; “Chang” beer; “Oishi” green tea; and food 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. At present, ThaiBev’s assets comprise 18 distilleries and three breweries in Thailand. In addition, the company owns five Scotch whisky distilleries in Scotland and one newly-acquired distillery in China. Domestically, ThaiBev’s annual production capacities include 1,550 million liters of beer and 819 million liters of spirits. 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 753 active agents, more than 1,000 sales persons, and 4,000 transportation vehicles, to serve more than 400,000 retail outlets throughout the country.
ThaiBev has enjoyed the leading position in 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. For the beer segment, ThaiBev is one of the two main players in the Thai beer market. The arch-rival of ThaiBev is the Boon Rawd Brewery Group (Boonrawd), which has a long presence in the beer market under “Singha” brand. ThaiBev and Boonrawd hold over 90% share of the beer market. ThaiBev significantly expanded the non-alcoholic beverages and food businesses in 2008 which offered a high growth potential, though at present, the contribution remains minimal.
TRIS Rating said, despite having only two main beer producers, the Thai beer market has been intensely competitive, partly from various legal restrictions and price sensitive nature for products in economy segment. The economic slowdown since late 2008 and higher price in 2009 caused total domestic beer consumption to drop 4.3% in 2008 and further plunged 11.7% in 2009, the first negative growth recorded since 1990. In contrast, total spirit consumption increased by an average of around 6.3% per annum during 2008-2009; outpacing the 2.5%-3.5% annual growth during 2005-2007. As a result of increased excise tax in May 2009, both beer and spirit prices were raised. Consumer preference has shifted from beer to spirits because beer is more expensive than liquor in terms of value for alcoholic content.
ThaiBev’s financial profile has remained very strong. The financial strength is underpinned by its fairly stable profitability, solid cash flows, reduction in debt, and substantial liquidity. ThaiBev reported annual sales of Bt105,452 million in 2008, and Bt107,969 million in 2009, a 2.4% growth. The increase was mainly owed to 12.6% and 16.6% growth of spirits sales in 2008 and 2009, respectively, despite the decline of beer sales for 19.1% and 21.5% during the same period. The operating margin before depreciation and amortization was in the range of 18%-21% during 2006-2009, with the spirits segment as a main profit contributor. The company has generated over Bt14,000 million in funds from operations (FFO) per annum for the last four years. The leverage ratio is considered low with the debt to capitalization ratio in the range of 22%-24% during 2007-2008 and 17.5% at the end of 2009. Most debts are short-term loans. The FFO to total debts ratio remained high at 81.5% in 2008 and 123.4% for 2009.
The Thai alcoholic beverage industry continues to face intense competition and uncertain government policy. The market is expected to grow marginally as various regulations, including excise tax increases; advertising limits; and sales restrictions discourage alcoholic beverage consumption, said TRIS Rating. -- End
Company Rating: Upgraded to AA from AA- Rating Outlook: Stable
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