'Golden Goose' Sabeco seen as Thaibev’s savior for Singapore IPO

Thailand's largest brewer could value its beer business up to $10 billion, according to recent news article from Bloomberg.

In 2017, ThaiBev agreed to buy Sabeco (HoSE: SAB) at a price of nearly $5 billion while Vietnam’s Ministry of Industry and Trade was said to have successfully sold Sabeco’s stakes with a good price.

Now, the Vietnam’s beer market will have to satisfy the high expectation for this huge investment amount of the Thai billionaire.

With the valuation of $10 billion, ThaiBev's beer business will be among the largest brewers in the region, equaling to China's Tsingtao. ThaiBev is renowned for producing Chang beer, a green bottle with the image of two elephants.

In addition, ThaiBev has other brands including Archa, Federbrau, Tapper, Huntsman, Black Dragon and Sabeco.

Thanks to Sabeco acquisition, ThaiBev’s beer revenue increased 27% to $4 billion while profit was reported an increase of 50% to $104 million, according to company’s ThaiBev's financial statement for fiscal year that ended on September 30.

Sabeco's selling expenses in the first 3 quarters of 2019 reaches $91 million, highest in the past 5 years. Photo courtesy of Sabeco

The growth came from Sabeco's contribution in Vietnam market while Thailand and regional markets are weakening, said ThaiBev.

In 2017, Vietnam Beverage, ThaiBev's branch in Vietnam bought 53.59% stake in Sabeco for $4.8 billion. In the 4 quarters that ended on September 30, 2019, Sabeco's revenue was about $1.5 - $1.7 billion, much lower than $4 billion beer revenue of ThaiBev. It can be seen that ThaiBev highly appreciates Vietnam's beer consumption growth.

The Thai brewer announced that it has no target for promoting beer consumption in Vietnam. Sabeco is attractive because it is a leading beer company in the Vietnamese market with a long history, the company said.

By accepting the valuation that was 32 times higher than Sabeco’s pre-tax profit and recent plan to list beer business on Singapore stock exchange, ThaiBev could promote Vietnam’s beer market potential to attract investors.

Sabeco's growth and potential of Vietnam's beer market could be key for the Singapore IPO. Other markets of ThaiBev are gradually declining.

Euan McLeish, an analyst at Bernstein, said that ThaiBev has no need to raise capital at the moment. The IPO could be a strategy to attract Budweiser APAC to buy Sabeco shares. Budweiser is facing a great opportunity to acquire Sabeco.

Although beer consumption in major markets including the US, Japan and China will hardly grow, in Southeast Asia, the beer market is still one of the highlights of the industry. According to Euromonitor, the growing middle class and young population will boost the demand for beer in Vietnam by 300% between 2002 and 2017.

Monthly consumption of Sabeco beer could be 5.7 cans each person by 2021. Photo courtesy of Sabeco

In 2019, ThaiBev's total beer sales was reported at 2.7 billion liters, up 31% from the previous year. ThaiBev's international beer business reported 44% growth in sales and a major part of the achievement was contributed by Sabeco.

Viet Capital Securities Company (VCSC) commented that Sabeco accounts for about 43% of beer market share in 2018. After the success of the campaign to re-brand Saigon Beer, Sabeco has re-branded 333 beer.

According to Sabeco's earning report, selling expenses in the first 3 quarters of 2019 reached VND2,099 billion ($91 million), the highest spending during the past 5 years.

VCSC estimated the total beer consumption in Vietnam in 2018 was 4.2 billion liters, equivalent to the annual consumption of 44.4 liters a person or each Vietnamese citizen drinks over 11 bottles of beer each month and Sabeco holds 43% of the market share.

ThaiBev did not announce revenue target after acquiring Sabeco, but the company’s 2019 shareholders’ meeting expected beer consumption would increase to more than 1,908 million liters.

With effective branding and marketing strategy, growth rate of Sabeco beer consumption in 2019-2021 period is estimated at 7%. With the current population growth rate of 1%, monthly consumption of Sabeco beer will be 5.7 cans each person by 2021, according to VCSC.

The Sabeco deal was said to be a success for Vietnam. In return, in order to get higher profit, ThaiBev may have to increase revenue in the future. That means every Vietnamese citizen could have to drink an additional Sabeco’s beer can each month to satisfy investor’s expectation.

Vietnam's beer consumption is already among the highest in the world.

► As of end-September, Sabeco pays totally $350 million tax, up 13%

► ThaiBev considering a Singapore IPO of $10 billion brewery business: Bloomberg