Is ThaiBev's Sabeco deal too expensive?

Debt backs the majority of consideration price for the beermaker.

Thai Beverage Public Company Limited's (ThaiBev) acquisition of a 53.59% stake in Saigon Beer - Alcohol - Beverage Joint Stock Corporation (SABECO) could be too pricey and might dilute some earnings, CIMB said.

According to a report, the acquisition leads to ThaiBev controlling an effective 26.3% in Sabeco via its indirect wholly-owned subsidiary BeerCo's 49% stake in Sabeco owner Vietnam F&B Alliance Investment Joint Stock Co.

ThaiBev's illustrative net gearing of 1.3x, up from 0.2x, implies close to 100% of the purchase consideration. This is puzzling for CIMB, given ThaiBev's 49% stake.

Whilst the entry into a player with a 41% share in Vietnam's beer market is ideal, the additional debt skew deal valuations to its 2017 and 2018 price-to-earnings ratio (P/E) of 86x and 79x against 42x and 38x, respectively.

CIMB projects associate contributions to grow by at least $82m (THB2b). However, this is dragged by an additional debt load of $147.98m-164.42m (THB3.6b-4b).

Earnings per share (EPS) in 2018 to 2020 is expected to fall 4.5-1.4%, whilst 2018 net gearing can rise from 0.2x to 1.5x after consolidating its Sabeco, KFC Thailand, and Myanmar Distillery acquisitions.

CIMB analyst Cezzane See commented, "We believe ThaiBev may embark on funding exercises to re-optimise its balance sheet post its acquisition spree this year (total spent: c.THB191bn). Options available may include: i) rationalising its stake in Frasers Centrepoint Ltd (FCL) (c.THB44bn based on 28.4%-stake); ii) cash-call from the 51% partner in Vietnam F&B Alliance Investment Joint Stock Company; and iii) raising its own equity funding."

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