Thailand should be a familiar country for many of us in Singapore. The country, also popularly known as the Land of a Thousand Smiles, is home to one of the largest economies in Southeast Asia. And, with a population of more than 68 million people, it is also one of the countries in the region with high potential for growth. In fact, despite facing many political challenges over the past few years (anyone still remembers the military coup which happened in the middle of 2014?), Thailand has still managed to grow and keep its unemployment rate low. Therein lies…
Thailand should be a familiar country for many of us in Singapore.
The country, also popularly known as the Land of a Thousand Smiles, is home to one of the largest economies in Southeast Asia. And, with a population of more than 68 million people, it is also one of the countries in the region with high potential for growth.
In fact, despite facing many political challenges over the past few years (anyone still remembers the military coup which happened in the middle of 2014?), Thailand has still managed to grow and keep its unemployment rate low. Therein lies the resilience of the Thai economy.
So why am I extolling the virtues of Thailand here? That’s because all the above act as a key backdrop when it comes to understanding one of the largest Singapore-listed companies, Thai Beverage Public Company Limited (SGX: Y92).
The beverage king
For a company with a sizeable market capitalisation of S$18 billion, ThaiBev has shown that elephants do gallop.
In 2014, the company’s net profit grew nearly 13%; even if we strip out the contributions from Fraser and Neave Limited (SGX: F99) (ThaiBev had acquired a partial stake in F&N in 2013), ThaiBev’s net income still managed to grow by 11%.
For most investors in Singapore, ThaiBev is perhaps best known for its Chang brand of beer (the one with the elephant logo). This might result in a false assumption that ThaiBev is predominantly a beer business and that it is heavily dependent on tourism as Chang beer is something we can see in many tourism venues in Thailand.
A peak beneath the curtain reveals otherwise. ThaiBev has four main business segments: Spirits; Beer; Non-alcoholic beverages; and Food. Beer only took up 21.7% and 2.1% of ThaiBev’s total revenue and profit, respectively, in 2014.
The main bulk of ThaiBev’s business actually resides in the Spirits segment (64.6% of sales in 2014) and it is a business that is actually driven by domestic consumption in Thailand. As such, ThaiBev is closely tied to the economy of the country.
Where is the growth coming from?
As 105% of ThaiBev’s total profit comes from the Spirits segment (the company’s losing money in the Non-alcoholic beverages segment), it means that there might be more room to grow for the firm’s other three segments as and when they improve their profitability in the future.
That’s also not to mention the obvious tailwinds to all of ThaiBev’s business coming from the strong Thai economy I mentioned earlier.
Moreover, instead of merely serving the Thai market, ThaiBev is also looking for ways to increase international sales throughout its four business segments. With the synergies that can be derived from Fraser and Neave, a firm with experience in other parts of Asia, the chances of ThaiBev exporting more of its products outside of Thailand’s borders seem pretty strong.
Yet, the company is not without its risks The very fact that ThaiBev’s Spirits business is so dominant in the company’s overall results indicates some strong concentration risk: If the Spirits business would face any downturn in the future, the result can be devastating for ThaiBev.
In addition, ThaiBev’s balance sheet is certainly not the strongest around – the firm’s net debt to equity ratio at end-2014 is 0.45. That ratio has improved from a year ago, but it’s still high and investors should keep an eye on its evolution in the future.
A Fool’s take
So in summary, ThaiBev does seem to have many positives going for it, such as a resilient and growing Thai economy and the possibility of international growth. That being said, there are also important risks to consider: ThaiBev has a large dependence on just one segment of its business and it has a rather high debt load.
Investors should weigh the pros and cons with the company before making any decision.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any company mentioned above.