Feb 27, 2014

ThaiBev: Reorganization of business units

New business units are beer, liquor, F&B. Previously its beverages were separated by their alcoholic and non-alcoholic nature.

The F&B unit is made up of Sermsuk, Oishi Group, F&N Thailand and the non-alcoholic beverages from Chang. The rationale behind this move is to increase competitiveness and efficiency. An example was given where a new ice-cream created by F&N Thailand is produced for Oishi, which sells it at its Nikuya buffet restaurant, while the F&N network in Malaysia distributes Oishi ready-to-drink green tea.

It is business as usual for Thai Bev as Oishi and Chang continue their planned CAPEX for 2014. Oishi is expanding its F&B business this year and is financing the costs from cash flow and bank loans.

When I wrote about Thai Bev last year, I was optimistic about Oishi as it was the only positive business unit after the liquor business within Thai Bev.
Fast forward to 2014, Oishi reported FY2013 sales growth increase of 5% but net profit fell by 30%. They have attributed it to the slowdown in consumer spending and intense market competition.

Oishi is generally right on both counts. 2013 was a year of tightening on spending by consumers after the crazy growth of 2012. There is going to be another wave of Japanese restaurants taking up shop in Bangkok, and competition has never been fiercer. That is why it is make of break for Oishi, and 30% of their CAPEX is to be directed for restaurant expansion.

On the green tea front, the Oishi is looking at opportunities in Malaysia as the Thai market is increasingly difficult. If Tan has his way, Ichitan will slowly but surely capture market leadership of RTD green tea in Thailand. To recap, the founder of Oishi sold the business to Thaibev, then set up Ichitan to compete with Oishi in RTD green tea again. Ichitan has been competing aggressively with Oishi but its plans for an IPO was postponed to 2014 due to political unrest.

Here are some interesting articles I found. A commentary about Oishi and Ichitan's marketing efforts, and a Forbes article on the founder of Ichitan.

Should Thai Bev just sell off Chang? Probably not, because then Singha would own the Thai market. Could Thai Bev buy Singha? Unlikely. Could Chang and Singha coexist in the market and be profitable? It is also unlikely to happen and I think Thai Bev should grow the other business units till the point where the loss from Chang is negligible or they should have a proper plan for capturing and retaining international market share (by the way, Chang beer will be partnering Grub to pair beer with insects in London for 4 nights from 5th March!).

I still do not see a reason for me to invest in Thaibev again ever since I divested fully last year. I look at the business much more than the technicals and nothing is exciting just yet. Beer is still a significant portion of the business but it is struggling to break even while operating in unfavorable climates. Excise taxes had been raised on alcohol in Thailand (last year?), and now Singapore is jumping in too with a 25% increase in liquor duties. Seriously, there has been so many ''funny'' news ever since I was out of the country! Not only beer, excise taxes on RTD green tea in Thailand may increase by 15-20% this year.

Instead, I am currently building a position in a restaurant company. They have been the market leader in their segment consistently and also generate the highest margins among their peers; something Oishi have a lot to learn from.

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