Thai Beverage (TBEV.SI / THBEV SP) No more Chang-over

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1 Asia Pacific/Thailand Equity Research Beer & Alcoholic Beverages Rating OUTPERFORM* Price (10 May 16, S$) 0.74 Target price (S$) 0.85¹ Upside/downside (%) 14.1 Mkt cap (S$ mn) 18,707 (US$13,647 mn) Enterprise value (Bt mn) 517,611 Number of shares (mn) 25, Free float (%) week price range ADTO - 6M (US$ mn) 5.4 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. Share price performance Research Analysts Nicholas Teh nicholas.teh@credit-suisse.com 2 Price (LHS) Rebased Rel (RHS) May-14 Sep-14 Jan-15 May-15 Sep-15 Jan The price relative chart measures performance against the FTSE STRAITS TIMES IDX which closed at on 06/05/16 On 06/05/16 the spot exchange rate was S$1.36/US$1 Performance over 1M 3M 12M Absolute (%) Relative (%) (TBEV.SI / THBEV SP) INITIATION No more Chang-over Sustainable gains in beer market share. Sales volumes of Chang saw a 17% YoY jump in CY15 after the launch of the new Chang Classic in August Some questions remain over its sustainability, but we believe Thaibev is in a strong position to maintain its market share gains as the recent surge is not just due to a change in packaging but due to: (1) a more effective marketing strategy, (2) streamlining of sales teams and management, and (3) leveraging on the expertise of ex-apb management. A clear leader in Thai spirits. Thaibev dominates the Thai spirits market with a market share of ~90%. Moving forward, we expect the spirits business to continue to grow at a stable 1% p.a. given the current weakness in consumption in Thailand. The spirits business will continue to account for majority of the earnings, but that majority will gradually be eroded by beer. Narrowing losses for non-alcohol. Thaibev is still in the investment stage of growing its non-alcoholic business, particularly in the CSD segment. We expect SG&A for non-alcohol to remain elevated but the level of losses in the division to start to narrow. Key risk in the near term is a hike in excise taxes which is expected in 2016 historically, Thaibev has been able to pass on the higher cost and is expected to do the same this time around. Initiate with OUTPERFORM and a TP of S$0.85 based on our sum-of-theparts valuations which implies an upside of 14%. Thaibev currently trades at a CY16 P/E of 19.3x, which is at a 12-17% discount to Thai consumer staples and global alcohol peers. A sustainable growth of beer will give investors more confidence over extracting further synergies within the business and growing regionally. Financial and valuation metrics Year 12/15A 9/16E 9/17E 9/18E Revenue (Bt mn) 172, , , ,121.7 EBITDA (Bt mn) 27, , , ,522.0 EBIT (Bt mn) 23, , , ,241.2 Net profit (Bt mn) 22, , , ,277.1 EPS (CS adj.) (Bt) Change from previous EPS (%) n.a. Consensus EPS (Bt) n.a EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%) Source: Company data, Thomson Reuters, Credit Suisse estimates DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

2 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E E 2017E 2018E HEIN Americas SAB US CARL WE HEIN CEE HEIN WE SAB Europe Kirin CARL EE Chang MC Canada HEIN Asia Pac Asahi CARL Asia Hein Mexico ABI Canada SAB Australia CARL Msia ABI US 11 May 2016 Focus charts and table Figure 1: Expect growth in Chang volumes to continue (mn liters) Volume Market share % Figure 2: Chang lowest margins compared to peers (market share) Market share EBITDA margin (EBITDA margin) 50.0% 45.0% % 45.0% 35.0% 25.0% 15.0% 5.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% % Figure 3: More streamlined organisational structure Note: As at Source: Company data Figure 4: EBITDA spirits forms a stable base while beer drives growth (Bt mn) Spirits Beer Non-alcoholic beverages Food 38,000 33,000 28,000 23,000 18,000 13,000 8,000 3,000 (2,000) Source: Company data, Credit Suisse research Source: Company data Figure 5: Non-alcohol losses to narrow moving forward Figure 6: SOTP valuation summary Value to (Bt bn) Component Units Value Multiple THBEV 1,000 THBEV spirits DCF Bt mn 444, THBEV beer DCF Bt mn 59,258 0 Non-alcohol & food DCF Bt mn 20,913 (500) (1,000) F&N (Equity value) FY16 EBITDA Bt mn 6, ,286 FCL (Equity value) P/B Bt mn 47, ,424 (1,500) (2,000) Net debt (FY15 end) + minorities Bt mn -44,419 (2,500) (3,000) E 2017E 2018E NAV Bt mn 541,222 Number of share Bt mn 25,110 Target price S$ 0.85 Source: Credit Suisse estimates (TBEV.SI / THBEV SP) 2

3 No more Chang-over Sustainable market share gains in beer Sales volumes of Chang saw a 17% YoY jump in CY15 pushing market share up to 38% from 30% previously (Figure 13). The volume growth came largely in 4Q when beer volumes rose 50% YoY following the launch of the new Chang Classic in August 2015 this was the strongest volume growth Thaibev had seen since Some questions, however, remain over sustainability given that the recent surge was caused dimply due to a change in packaging. However, we believe Thaibev is in a strong position to maintain its market share as the recent surge is not just due to a change in packaging but: (1) due to a change in the company's focus on branding which has resulted in more effective marketing, (2) due to streamlining of sales teams (splitting beer and spirits) and management, and (3) due to leveraging on the expertise of ex-f&n (and APB) management. We believe synergies with F&N are starting to materialise and Chang is the lowest hanging fruit. We expect beer revenues to show an FY15-18E CAGR of 12% with EBIT growing at 51%. A clear leader in Thai spirits Thaibev dominates the Thai spirits market with its brands making up eight out of the top-ten selling spirits in the country and commanding a market share of ~90% the share is 95% in white and 86% in brown spirits markets. The white spirits are most widely drunk in the more rural areas and are significantly cheaper compared to the brown spirits segment which has a more premium positioning. Spirits consumption has shown a CAGR of 1.9% and has created a stable earnings base for Thaibev as the segment currently accounts for 94% of its EBITDA. Moving forward, we expect the spirits business to continue to grow at a stable 1% p.a. given the current weakness in consumption in Thailand. The spirits business will continue to account for a majority of its earnings, but that majority is expected to decline to 79% of EBITDA in FY18 due largely to the strong growth in beer. Narrowing losses for non-alcohol Thaibev is still in the investment stage of growing its non-alcoholic business, and particularly in the Carbonated Soft Drinks (CSD) segment, where it is still trying to build up the brand presence and market share of Est and 100 PLUS (in Thailand). We expect its SG&A to remain elevated moving forward but for the level of losses in the non-alcoholic division to narrow. The market is expecting Thaibev to raise its stake in F&N in 2016 via a share swap of Thaibev's 28.5% stake in FCL for TCC group's 59.4% stake in F&N, which would make it a purer regional beverage entity. Simply based on the current market caps, Thaibev will need an additional S$269 mn to consolidate the stakes in F&N. However, post the exercise, Thaibev's balance sheet would be strengthened by F&N's net cash position, leaving ~Bt75 bn for capex given Thaibev's target gearing is 2.5x net debt to EBITDA. Initiating with OUTPERFORM We initiate on Thaibev with an OUTPERFORM rating and a target price of S$0.85 based on sum-of-the-parts valuation, implying an upside of 14%. We value the spirits, beer, and non-alcohol/food businesses on DCF. For spirits and beer, the valuations imply CY16-17 EV/EBITDA multiples of 16x and 12x-18x respectively, in line with the range for peers. Our valuations for the non-alcohol/food and associates are similar to current market values. Thaibev currently trades at a CY16 P/E of 19.3x, a 12-17% discount to Thai consumer staples and global alcohol peers. A sustainable turnaround of beer will give investors more confidence over reaching vision 2020 (50% of revenues derived outside Thailand and from non-alcohol) and extracting further improvements/synergies within the business. We believe market share gains are sustainable New streamlined structure, more effective marketing, and leveraging off ex-apb expertise A stable 90% market share in spirits market Non-alcohol business still in investment phase but expect losses to narrow F&N swap will strengthen balance sheet and leave room for acquisitions Initiating with an OUTPERFORM (TBEV.SI / THBEV SP) 3

4 TBEV.SI / THBEV SP Price (10 May 16): S$0.74, Rating: OUTPERFORM, Target Price: S$0.85, Analyst: Nicholas Teh Target price scenario Scenario TP %Up/Dwn Assumptions Upside PE similar to consumer staples peer 23x Central case Downside 0.60 (19.46) Lower end of the range of consumer staples peers' 15x Income statement (Bt mn) 12/15A 9/16E 9/17E 9/18E Sales revenue 172, , , ,122 Cost of goods sold 121, , , ,162 SG&A 27,028 28,969 29,630 29,719 Other operating exp./(inc.) (4,358) (4,378) (4,327) (4,281) EBITDA 27,549 28,581 30,577 32,522 Depreciation & amortisation 4,358 4,378 4,327 4,281 EBIT 23,191 24,202 26,250 28,241 Net interest expense/(inc.) 1,344 1, Non-operating inc./(exp.) 1,351 1,182 1,206 1,230 Associates/JV 7,774 4,979 5,159 5,350 Recurring PBT 30,972 29,315 31,677 34,008 Exceptionals/extraordinaries Taxes 4,508 4,867 5,304 5,732 Profit after tax 26,463 24,448 26,373 28,277 Other after tax income Minority interests (0.32) (0.30) (0.33) (0.35) Preferred dividends Reported net profit 26,464 24,448 26,373 28,277 Analyst adjustments (3,848) Net profit (Credit Suisse) 22,616 24,448 26,373 28,277 Cash flow (Bt mn) 12/15A 9/16E 9/17E 9/18E EBIT 23,191 24,202 26,250 28,241 Net interest Tax paid (5,003) (4,867) (5,304) (5,732) Working capital (1,236) (1,471) (987) 41 Other cash & non-cash items 4,756 3,196 3,121 3,051 Operating cash flow 21,709 21,060 23,081 25,601 Capex (4,219) (4,869) (4,022) (4,018) Free cash flow to the firm 17,490 16,192 19,059 21,583 Disposals of fixed assets Acquisitions Divestments Associate investments Other investment/(outflows) 1,863 1,483 1,109 1,130 Investing cash flow (2,356) (3,386) (2,913) (2,888) Equity raised Dividends paid (15,317) (16,824) (18,330) (19,837) Net borrowings (3,728) (3,238) (3,663) (3,330) Other financing cash flow (1,439) (1,302) (1,208) (1,110) Financing cash flow (20,484) (21,364) (23,201) (24,277) Total cash flow (1,131) (3,689) (3,033) (1,564) Adjustments Net change in cash (1,131) (3,689) (3,033) (1,564) Balance sheet (Bt mn) 12/15A 9/16E 9/17E 9/18E Cash & cash equivalents 3,490 4,182 5,625 8,886 Current receivables 5,294 4,483 4,667 4,815 Inventories 35,204 38,033 39,551 40,790 Other current assets 4,140 4,446 4,638 4,791 Current assets 48,128 51,144 54,481 59,282 Property, plant & equip. 46,921 47,412 47,107 46,844 Investments 77,265 78,702 80,679 82,558 Intangibles 7,228 7,228 7,228 7,228 Other non-current assets 2,475 2,567 2,662 2,763 Total assets 182, , , ,674 Accounts payable 9,854 10,412 10,944 11,631 Short-term debt 18,645 16,539 14,854 13,506 Current provisions 2,300 2,300 2,300 2,300 Other current liabilities 2,291 2,278 2,376 3,000 Current liabilities 33,090 31,529 30,473 30,437 Long-term debt 25,883 24,752 22,774 20,792 Non-current provisions 3,637 3,733 3,828 3,924 Other non-current liab Total liabilities 62,751 60,163 57,226 55,303 Shareholders' equity 115, , , ,993 Minority interests 3,380 3,380 3,380 3,379 Total liabilities & equity 182, , , ,675 Key earnings drivers 12/15A 9/16E 9/17E 9/18E Vol growth - spirits (%) Volume growth - beer (%) Realisation/litre-spirits (Bt) Realisation/litre- beer (Bt) Source: Per share data 12/15A 9/16E 9/17E 9/18E Shares (wtd avg.) (mn) 25,110 25,110 25,110 25,110 EPS (Credit Suisse) (Bt) DPS (Bt) BVPS (Bt) Operating CFPS (Bt) Key ratios and valuation 12/15A 9/16E 9/17E 9/18E Growth(%) Sales revenue EBIT (0.80) Net profit EPS Margins (%) EBITDA EBIT Pre-tax profit Net profit Valuation metrics (x) P/E P/B Dividend yield (%) P/CF EV/sales EV/EBITDA EV/EBIT ROE analysis (%) ROE ROIC Asset turnover (x) Interest burden (x) Tax burden (x) Financial leverage (x) Credit ratios Net debt/equity (%) Net debt/ebitda (x) Interest cover (x) MF P/E multiple Source: IBES 12MF P/B multiple (TBEV.SI / THBEV SP) 4

5 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 11 May 2016 Sustainable market share gains in beer Sales volumes for Chang saw a 17% YoY jump in 2015 pushing its market share up to 38% from 30% previously (Figure 13). The volume growth came largely in 4Q when beer volumes rose 50% YoY following the launch of the new Chang Classic in August 2015, the best sales volumes achieved since Chang had once been the dominant beer in Thailand but lost that position very quickly. As such, there are still some questions over the sustainability of market share gains and the company's capability to deal with a reaction from Singha & Leo. However, we believe Thaibev is in a strong position to maintain its market share and potentially look for more gains as the successful launch of Chang Classic was not only driven by a change in branding/packaging but also a change in the focus of sales, marketing/branding, and management. Volume growth in 2015 driven by launch of new Chang Classic in 4Q Market share gains are down to more than just a change in packaging Figure 7: Strongest beer volumes in 4Q CY15 since 2007 (mn liters) Volume YoY growth (YoY growth) 80.0% Launch of new Chang Classic 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% % Not just a change in bottle colour Figure 8: Consolidating Chang beers into one product with new packaging and lower alcohol content Source: Company (TBEV.SI / THBEV SP) 5

6 In August 2015, Thaibev consolidated all its beer brands, Chang Light, Chang Export, Chang Draught, under the Chang Classic brand. The most visible change was in the packaging which switched from amber bottles to more modern looking green bottles to convey a premium positioning and targeting a younger age group (25-35 years). The blend of Chang Classic also changed as it now offers a lighter 5.5% alcohol by volume (abv) and a reduced bitterness with an IBU (International Bitterness Unit) of just 13, improving the drinkability of the beer. The previous Chang Classic had a much heavier 6.4% abv and an IBU of 30. This has allowed for Chang's pricing to move closer to its competing brand, Leo, whose price is only Bt1 higher for big bottles and is on par for smaller bottles. More effective marketing hosting events Chang has also moved to hosting events with the launch of Chang Carnival, Chang Football Sevens, and Chang Music Connection. We believe the events have been a more effective way of marketing and helping to create and build brand equity and consumer affiliation with the brand. In the past, Chang used to sponsor events rather than host them, which promoted consumption during the event but created less visibility resulting in limited impact on consumption, post the events. New Chang Classic green bottle, lower alcohol content, lower bitterness Marketing shift toward hosting event creates more affiliation with the brand Figure 9: Chang carnival, music connection, and football sevens events Source: Chang Beverage (TBEV.SI / THBEV SP) 6

7 A more streamlined structure Figure 10: More streamlined management structure Source: Company data, Credit Suisse research What has been less visible to consumers is the more streamlined management structure. Since Vision 2020 was announced (2014), Thaibev has streamlined its core businesses into beer, spirits, and non-alcoholic beverage while creating a separate management and sales teams for each of them. Previously the group's structure was segmented into the production of beer, spirits, nonalcoholic beverages, and international business while a separate group would be in charge of sales as a whole. As a result, the sales teams previously could rely on hitting their sales targets by selling their strongest product, spirits, and not aggressively pushing beer sales. However, with separate sales teams, the beer product group will now be purely focused on driving beer sales, similarly, spirits and non-alcohol teams will be focused on driving sales of their own divisions. and leveraging on F&N expertise Thaibev's beer business now leverages on the expertise of F&N, which has largely built its track record in the alcoholic beverage sector via a JV with Heineken in Asia Pacific Breweries (APB) that started in APB was sold to Heineken in 2012; however, F&N retained some of the management team which Thaibev is now leveraging to turn around the beer business. Edmond Neo joined Thaibev as the CEO of Chang International in August 2014 and is in charge of the beer business. He had previously spent 20 years in APB with experience of working in Singapore, New Zealand, Cambodia, and Sri Lanka. His previous role with APB was mainly in the branding/marketing front where he held the position of senior marketing manager. He also held the position of senior brand manager at APB and DB Breweries while his last position was as head of group marketing at F&N. Although short, his track record at Chang has started off strongly with the rebranding/ consolidation of Chang Beer helping drive significant volume and market share gains. We understand that other employees were also brought over from Heineken and APB to create a better mix of new and experienced staff. Given the strong growth in sales volumes, capacity utilisation is now up to 65% (from 40% previously). Management structure more streamlined Separate sales teams for spirits and beer Leveraging on F&N expertise of running Asia Pacific Breweries (TBEV.SI / THBEV SP) 7

8 Figure 11: Edmond Neo extensive marketing/branding background with APB Date Position 2014 Present CEO, Chang International Head Group Marketing, F&N Director Group Commerce, APB CEO, APB Lanka Commercial Manager, Cambodian Brewery Asst GM Group Commerce, APB Regional Marketing Manager, Phillips Spore Mobile phone division Senior Marketing Manager, APB Group Commerce Senior Brand Manager, DB Breweries Senior Brand Manager, APB Corporate Bank Officer, OUB Auditor, PWC Source: Linked In Expect market share gains to be sustainable Chang was once the number-one beer player in Thailand but subsequently saw a rapid decline in its market share. We believe that the market share gains this time around are more sustainable as they are not only driven by a change in product but are backed by a more focused management structure with the support of veterans in the regional beer industry who have had the experience in defending a leadership position. We expect market share gains to be sustainable Figure 12: Expect growth in Thaibev beer volumes to be sustainable (mn liters) 1,200 1, E 2017E 2018E Figure 13: Chang beer market share trend 70.0% 60.0% 64% 60% 59% 50.0% 40.0% 30.0% 49% 47% 38% 31% 34% 32% 32% 30% 30% 38% 42% 44% 45% 20.0% 10.0% 0.0% E 2017E 2018E Source: Company data, Nielsen, Euromonitor, Credit Suisse estimates (TBEV.SI / THBEV SP) 8

9 EBITDA margin - % 11 May 2016 How's the competition reacting? The significant market share gains made by Chang have taken Boon Rawd Brewery (Singha & Leo) by surprise and the initial reaction seems to be to offer retailers/agents bigger rebates. Lowering the pricing of Leo on wholesale, however, has not filtered through to retail prices, and Leo has yet to undercut the pricing of Chang. For now, the beers are relatively evenly priced. In a recent interview, Piti Bhirom Bhakdi, the MD of Boon Rawd Trading, indicated plans to use cash flow from its beer business to diversify the group into property and focus on maintaining profit margins rather than market share. As such, this would imply that there would not be aggressive price cutting pressure from Singha & Leo. Chang beer is the low hanging fruit Boon Rawd Brewery has so far lowered pricing of Leo on wholesale market Figure 14: Chang's margins are significantly lower than industry peers with similar market share 60% 50% R² = ABI Mexico ABI Brazil ABI LatAm South SAB Colombia SAB LatAm 40% ABI US SAB Australia ABI Canada SAB Tanzania 30% 20% 10% HEIN Asia Pac CARL EE HEIN CEE MC Canada Guinness Nigeria SAB Europe 25.0% Hein Mexico HEIN Americas HEIN WE CARL Asia SAB US ABI China CARL WE GAB MC Europe Kirin CARL Msia SAB China Yanjing Efes EBI CCU Argentina Sapporo Tsingtao Castel HEIN Africa ABI Korea Efes Turkey SAB Africa SAB SA Thaibev 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Market share - % Chang Beer has been a significant underperformer compared to industry peers. Despite having a market share of over 30%, EBITDA margins of 2.9% are significantly below industry peers of 20-23% with similar market share. We believe that Chang will continue to gain market share while margins will sequentially improve to 10.0% in Back in when Chang's market share was 38-49%, its EBITDA margins were %; as such, there is potential for margins to improve further. Chang Beer has been the low hanging fruit given market share and poor margins Scope for profitability to continue improving Chang Beer has started turning profitable on an operating profit level mainly as its SG&A as a proportion of revenue has started to decline given the more impactful marketing efforts. Although absolute SG&A expenses surged in 4Q, with the launching of Chang Classic, its percentage of revenue and SG&A per litre was lower QoQ. (TBEV.SI / THBEV SP) 9

10 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q May 2016 Management has guided that malt price has been fixed for 2016 at about 10% lower than the year before. Also, the government has removed the import tariff on malt from Europe. Raw materials only account for about 5% of revenues, but cost savings will help provide some buffer for an expected hike in excise taxes. We also note that, with the new bottle change, packaging cost is expected to remain elevated for another 2-3 quarters, as management slowly builds up the ratio of recycled versus new bottles for production. Raw materials have been locked in at lower prices YoY Figure 15: SG&A vs OP margin 33% SG&A/revenue OP margin 12% 28% 7% 23% 2% -3% 18% -8% 13% -13% 8% -18% Source: Company data, Credit Suisse research Figure 16: Breakdown of Chang's 2015 revenue cost Depreciation 2% Raw Materials 5% Packaging 13% Labor Other 1% 2% Net profit 3% Int exp & tax 1% SG&A 16% Figure 17: Quarterly SG&A expense 2,500 2,000 1,500 1, Excise Tax 57% 0 Source: Company data Taking the weight off spirits We expect beer revenues to show a E CAGR of 12% while revenue margins will expand from 3.6% to 7.8% in 2018E. This creates a 51% E CAGR in beer EBIT, albeit from a low base. It also marks a shift from earnings being purely driven by the spirits business supporting the loss-making non-alcoholic division and the previously lacklustre beer division to a situation where spirits will form the stable base while the beer business will drive growth. Less reliance on spirits with growth in beer (TBEV.SI / THBEV SP) 10

11 Figure 18: Beer revenues to show a 12% CAGR 70, E CAGR: 12% 60,000 Figure 19: Beer EBIT to show a 51% CAGR 5,000 4,000 50,000 3, E CAGR: 51% 40,000 30,000 2,000 1, ,000-1,000 10,000-2, E -3, E Revenue EBIT International sales International sales only account for ~15% of total volumes at the moment. As per Vision 2020, the primary international markets that the company will be targeting are Myanmar and Singapore, while Malaysia and Cambodia will be secondary. Chang Classic is already being distributed in Thaibev's regional markets with F&N handling the distribution in Singapore. In ASEAN, Chang already has a presence in Thailand, Myanmar, and Singapore. For Cambodia, Thaibev has entered into an exclusive nationwide distribution contract with Attwood Import and Export (distributor of Corona, Johnny Walker, and Moet Hennessey products). There are still opportunities for Thaibev/F&N to expand inorganically, and the company could also be looking at entering Vietnam and Myanmar. (TBEV.SI / THBEV SP) 11

12 A clear leader in Thai spirits The spirits market in Thailand is dominated by Thaibev with about 90% market share. Its white spirit brand, Ruang Khao, is the top-selling spirit in Thailand, accounting for ~50% of total spirit volumes, according to Euromonitor. Spirits is the largest segment in Thailand's alcohol industry accounting for 43% of total alcohol consumption by value in the country and 27% by volume. The spirits market has shown a CAGR of 2%. A clear leader with 90% market share in Thai spirits Figure 20: 2014 alcohol consumption in Thailand by value Wine 6% Figure 21: 2014 alcohol consumption in Thailand by volume Spirits 27% Wine 1% Spirits 43% Beer 50% RTDs/Premix 1% Beer 71% Source: Euromonitor RTDs/Premix 1% Source: Euromonitor Figure 22: Euromonitor spirits market share by brand (%) Brand Company Ruang Khao Blend Hong Thong Pai Thong Sang Som Mekhong Mungkorn Thong Siang Chun Crown Thaibev brands Pipers Pernod Ricard Regency Regency Thai Master Blend Pernod Ricard Others Others Source: Euromonitor Off trade consumption Additionally, almost all consumption for white spirits is off-trade while brown spirits are only 10-15% on-trade. As such, restrictions on permitted selling hours and consumption on premises are unlikely to have a significant impact. (TBEV.SI / THBEV SP) 12

13 Stable earnings base Its dominant position in the Thai spirits market provides a stable earnings base for Thaibev, accounting for 94% of its total EBITDA as the non-alcohol business is still unprofitable and Chang is just starting to turn in larger profits. The spirit's business is split into white and brown spirits with the two commanding market shares of ~94% and ~82% respectively. White spirits are priced lower (~Bt per bottle) and are mainly consumed off-trade and offer a cheaper alcoholic alternative for consumers to trade down while brown spirits (~Bt per bottle) have a more premium positioning and a higher proportion of ontrade consumption. The two segments provide resilience for Thaibev's earnings through economic cycles. Since listing, its total spirits sales volumes have been affected by political/economic fluctuations and excise tax hikes; however, gross profits have consistently continued to grow. Spirits forms a stable base for earnings Figure 23: Fluctuations in spirit volumes Excise tax hike Aug 2007 Excise tax hike May 2009 Excise Excise tax hike tax hike Aug Sept Figure 24:...but steady growth in EBITDA 35,000 30,000 25,000 20,000 15,000 10,000 Excise tax hike Aug 2007 Excise tax hike May 2009 Excise tax Excise tax hike Aug hike Sept E2017E2018E 5, Moving forward, we expect the spirits business to continue to form the majority of earnings and that majority to decline from 94% in FY15 to 82% in FY18 due to growth in beer. While gross profits will show a FY15-18E CAGR of 1%. Spirits expected to account for 82% of EBITDA in FY18 (from 94% currently) (TBEV.SI / THBEV SP) 13

14 Figure 25: Spirits to stay as the main contributor to EBITDA but at a lower level (Bt mn) 38,000 Spirits Beer Non-alcoholic beverages Food 33,000 28,000 23,000 18,000 13,000 8,000 3,000 (2,000) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E Extensive distribution network Thaibev has 18 distilleries supporting the spirits business and an extensive distribution network covering 400,000 points of sale in Thailand. This allows the company to reach the rural population which makes up over 50% of the country's population and creates significant barriers to entry. The spirits distribution network is a key barrier to entry and its dominance was vital in the successful growth of Thaibev's beer business during the 1990s. Stable spirits margins Spirits' gross profit margins have largely come down over the past ten years owing to hikes in excise taxes which constitute the largest cost component at 53% of revenue. SG&A (9.3% of revenue), raw materials (6.4%), and packaging (4.8%) are the next largest sources of cost for the spirits division these are bought based on long-term contracts and are likely to be maintained, going forward. Molasses prices rose by 6% in 2015 and management has fixed the pricing of its cost at similar levels in Extensive distribution network creates a key barrier to entry (TBEV.SI / THBEV SP) 14

15 Figure 26: Breakdown of 2015 revenue costs Depreciation 1% Packaging 5% Labor 1% Raw Materials 6% Net profit 19% Other 1% Int exp & tax 5% SG&A 9% Excise Tax 53% Figure 27: Gross profit margin trend Figure 28: Excise tax per litre 37.0% 36.0% 35.0% Excise tax hike Aug 2007 Excise tax hike May 2009 GP Margin Excise tax hike Aug 2012 (Bt) Excise tax hike May 2009 Excise tax hike Aug 2012 Excise tax hike Sept % Excise tax hike Sept % % % E (TBEV.SI / THBEV SP) 15

16 Narrowing losses for non-alcohol Still in the investment phase We believe Thaibev is still in the investment stage of growing its non-alcoholic business particularly in the carbonated soft drink (CSD) segment given that Est was only launched in 2012 and reaching Vision 2020 (50% of revenues from non-alcohol division) will require further cross-selling of products. Additionally, further launches are expected to continue with Est only present in Malaysia and Thailand, while investment in growing 100 PLUS will continue. We believe there could be an opportunity to bring in F&N's Nutrisoy in Thailand as it would be able to target the largest liquid milk segment of the Thai market. We expect SG&A to remain elevated in 2016 and 2017 as Thaibev continues to grow its recently launched brands. However, Thaibev will start to reap more returns from its investments, and SG&A as a proportion of revenue will peak at 49% in 2015, resulting in division losses starting to narrow. 11 May 2016 Non-alcohol division still in investment phase SG&A to remain elevated in 2016 and 2017 Figure 29: Non-alcohol SG&A to stay elevated but decline as a proportion of revenue (Bt bn) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,210 1,637 Launch Est 3,106 7,087 6,548 6,338 7,990 8,230 8,394 7, E 2017E 2018E SG&A (Bt mn) SG&A/sales 60% 50% 40% 30% 20% 10% 0% Figure 30: Non-alcohol LBIT to moderate moving forward (Bt bn) 1, (500) (1,000) (1,500) (2,000) (2,500) (3,000) E 2017E 2018E Figure 31: CSD is the largest market in Thailand (2014) Concentrates 0.2% RTD Coffee 2.7% Juice 5.3% CSD 43.2% RTD Tea 9.6% Sports and Energy Drinks 9.9% Bottled Water 29.1% Source: Euromonitor (TBEV.SI / THBEV SP) 16

17 Growing traction for 100 PLUS The core brands under the CSD segment are F&N's 100 PLUS and Thaibev's Est Cola. 100 PLUS was launched in Thailand last year and was positioned as a healthy carbonated soft drink (CSD) it already commands 1-2% market share. Additionally, the strong offering of the brand has allowed F&N to use it to start its expansion into new markets. In 2015, F&N opened up offices in Myanmar and Vietnam, beginning the venture into those markets via 100 PLUS. Further opportunities in those markets are likely to come in the form of ready-to-drink (RTD) teas, and Myanmar is already looking to launch Seasons. Est was launched in 2011, after Sermsuk's bottling contract with Pepsi ended. To date, its market share has been holding stable at about 10-12%. Thailand's CSD market is dominated by Pepsi and Coca-Cola which have a combined market share of 85%. Overseas, Est was officially launched in Malaysia in 4Q15 after a mid-year campaign that distributed 200k cans to consumers during Hari Raya. Recent new launches in the CSD sector have been with new flavours for Est such as grape berry and lychee pear. We believe management will look to focus on building up existing brands in the short term, rather than aggressively launching new ones. CSD makes up ~30% of non-alcoholic beverages, and we estimate that revenues will show a CAGR of 13% over E. Strong growth in Crystal Water Growing awareness in health and wellness has driven growth in the drinking water market in Thailand with a CAGR of 7.1% compared with carbonated soft drinks, which showed a CAGR of 3.8% over the same period. In 2015, the market grew 11% and the double-digit growth is expected to continue, moving forward. We have projected for sales volumes to show a E CAGR of 9%. Drinking water accounts for ~35% of nonalcoholic beverage revenues. Given the strong growth trajectory, Sermsuk expects to spend a total of Bt2.5 bn to expand capacity to 1.1 bn litres by Oishi starting to stabilise with stable marketing Oishi has continued to lose market share in the RTD tea segment since Ichitan was launched in The intense competition in the market has led Oishi to cut ASPs, diluting its gross profit margins, and aggressively spending on marketing to protect market share. ASPs continue to decline; however, market share looks to have moderated. Oishi launched Jub Jai in 2015 to counter Ichitan's Yen Yen herbal tea as the green tea market slowed, but SG&A is likely to stay high as Oishi and Ichitan continue to fight for market share. EBIT margins have also been trending up with a change in marketing strategy. SG&A has continued to decrease since Management is no longer looking to invest heavily in "hard sell promotions" but is instead focusing on building brand loyalty and sustainable long-term growth. Oishi already exports to ~20 countries and is in line with Vision 2020 Vietnam and Myanmar are the top priority markets. Vietnam has been the main target for changes in production bases and plans are afoot to export there in the first one or two years before opening a factory in the third year. We expect management to focus on building existing brands in the near term rather than aggressively launching new ones We have projected water sales volumes to show a E CAGR of 9% Market share losses have started to flatten out EBIT margins have improved with a change in marketing strategy (TBEV.SI / THBEV SP) 17

18 Figure 32: 4Q moving average ASPs are still falling (Bt/litre) Ichitan green tea launched Figure 33:...but EBIT margins rising on lower SG&A 25% 20% 15% 10% 5% 0% -5% Ichitan green tea launched Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15-10% 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 Figure 34: while market share losses are stabilising 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 39.0% 37.7% 36.0% 44.0% 57.0% 42.1% 43.8% 46.0% 27.1% 7.7% ICHI OISHI PURIKU LIPTON Others Source: Nielsen F&N's role is key for non-alcohol F&N will play an integral role under Vision 2020, focusing on expanding in Southeast Asia by leveraging on Thaibev and its own distribution network. The primary markets include Thailand, Malaysia, Singapore, and Vietnam, while secondary markets include Myanmar, the Philippines, and Indonesia. Of the primary markets, Thaibev and F&N already have a strong presence in Thailand, Malaysia, and Singapore. As such, Vietnam remains a key growth focus, and at the moment F&N has a presence there via its 9.5% stake in Vinamilk; however, it has just started venturing into the country with its own brands. Leveraging on F&N's expertise With the new streamlined management structure, Thaibev has also brought in Vivek Chhabra as the MD of Thai Drink, the entity in charge of the distribution of Oishi and is responsible for the brand building of the non-alcohol division. Additionally, he is also President of Sermsuk, replacing Dhitivute Bulsook, as of 1 October Dhitivute will serve as the third vice chairman of Sermsuk's executive committee. Chhabra was previously the CFO of non-alcoholic beverages at F&N and has had held several posts during his ~20 years with APB/F&N. His previous roles have been more regional focused Vivek Chhabra is the new MD of Thai Drink and the president of Sermsuk he was previously the CFO of non-alcoholic beverages at F&N (TBEV.SI / THBEV SP) 18

19 and he has worked in Singapore, India, Vietnam, and Pacific Islands and acquired a knowledge in entry strategies and M&As. We also understand that communication between several non-alcohol groups (Oishi, Sermsuk, Thai Drink) within Thaibev has improved significantly with regular meetings between groups helping drive synergies examples include, using excess capacity at Oishi to address capacity needs from Crystal Water. Additionally, feedback within the CSD segment has also improved with the marketing, sales, and distribution teams communicating more actively to help formulate/determine more effective marketing campaigns. Figure 35: Vivek Chhabra extensive regional experience in strategy and M&A Date Position Oct-15 Present President, Sermsuk and Thai Drinks Apr-15 Oct-15 CFO Non-alcoholic beverages, F&N Director Group Biz Development & Regional Director South Asia, Heineken Director Group Biz Development APAC, Heineken Director Group Finance APAC, APB Finance Manager Vietnam, APB Finance Manager APAC, Heineken Finance Manager/Controller, Britannia Source: Linked In Consolidating F&N this year? Thaibev is targeting to grow its non-alcohol revenue contribution to over 50% by 2020 from its current contribution of only ~13%. Additionally, Thailand still accounts for the majority, i.e., 95%, of its revenues today vs the target of 50% under Vision We believe getting to the target will require some inorganic growth in the non-alcoholic division with the most anticipated one being Thaibev consolidating TCC's 59.4% in F&N. Getting a larger share in F&N Thaibev and its major shareholder Charoen (via TCC Assets) became major shareholders in F&N and subsequently FCL (demerger from F&N and listing in January 2014) in Currently, Thaibev owns a 28.6% stake in F&N and a 28.5% stake in Fraser Centrepoint Limited (FCL). Meanwhile, Charoen, via TCC Assets, holds a 59.4% and a 59.3% stake in F&N and FCL, respectively. The market has long been expecting Thaibev to swap its 28.5% stake in FCL for TCC's 59.4% stake in F&N in order to make Thaibev a purer beverage play. One of the main hurdles for delaying a potential deal was the pending arbitration forcing F&N to sell its 55% stake in Myanmar brewery (owner of Myanmar Beer and Andaman Gold) to its JV partner Myanmar Economic Holdings (MEHL). That has since been settled with F&N agreeing to sell its stake for S$755 mn in October As such, we believe the swap/deal is likely to occur in Post consolidation of F&N, non-alcoholic beverages is expected to account for 34% of total revenues. Communication and coordination have improved within non-alcohol entities Thaibev expected to consolidate TCC's 59.4% stake in F&N F&N's arbitration over Myanmar Brewery now out of the way Consolidation of F&N would imply that non-alcoholic beverages account for 35% of revenue (TBEV.SI / THBEV SP) 19

20 Figure 36: Non-alcoholic beverages revenue contribution rises to 34% post consolidation Non-Alc 13% Post - F&N consol Non-Alc 34% Alc 66% Alc 87% Valuations imply a fairly even swap Simply based on the current market caps, Thaibev's stake in FCL is worth S$1.39 bn while TCC Assets' stake in F&N is worth S$1.66 bn, implying that Thaibev will need an additional S$269 mn if the deal is done at the current levels. However, we note that FCL currently trades at a price to book of 0.7x, partly due to the low liquidity of the stock. FCL re-evaluates its assets on a yearly basis, implying that the fair value of the company trades at a P/B of 1.0x, valuing Thaibev's stake at S$1.86 mn. This would imply that at the fair valuation, the stakes are similarly valued and would not require any capital outlay. Cleaner beverages exposure F&N is a dominant dairy and beverages company and has the largest beverages market share in Malaysia and second largest in Singapore. In dairy, it commands the largest canned milk market share in Thailand (44%) and Malaysia (58%) while having the largest pasteurised juice and canned milk market share in Singapore (No. 2 in liquid milk). An FCL/F&N stake swap will make Thaibev a much cleaner beverages company, and remove its exposure to property. We believe some of the synergies are starting to take place with the managerial changes, particularly from leveraging off the experience of F&N/APB veterans in the beer and non-alcoholic segments while cross-selling of products such as Est and 100PLUS which are at the early stages of gaining further traction. Strengthening the balance sheet We estimate F&N/FCL's contribution to Thaibev to be between Bt3.6 bn and Bt4.0 bn to Thaibev's PBT from 2016E-18E at current stakes. Given the sales of APB and Myanmar Brewery, the profit contribution from F&N is significantly lower than FCL as such, a swap would result in a decline in net profit by about 6% or Bt bn. However, Thaibev's balance sheet would look even stronger post swap, with net debt to EBITDA declining to 0.6x from 1.1x given that F&N is in net cash after its sale of Myanmar Brewery. This will leave significant room of about Bt75 bn for acquisitions given Thaibev's target gearing is 2.5x net debt to EBITDA. We estimate that gearing up and spending that Bt75 bn on acquisitions in the range of 15-20x P/E would add about 6-11% accretion to our EPS forecasts. Based on current market caps, Thaibev would have to pay an additional S$269 mn for F&N F&N's net cash position will strengthen Thaibev's balance sheet, leaving ~Bt75 bn for acquisitions (TBEV.SI / THBEV SP) 20

21 Several potential acquisitions mentioned so far Sabeco The timing of any potential Sabeco deal is uncertain, and it may be incrementally more appealing to enter the Vietnamese market (has one of the highest beer consumption per capita in ASEAN) via a stake in a strong existing brand given that competition in the local beer market has intensified with Singha's acquisition of a stake in Masan group's consumer and brewery businesses. Figure 37: Beer products under the Sabeco brand Source: Company Vinamilk The State Capital Investment Corporation in Vietnam is reportedly looking to sell its 45.1% stake in Vinamilk. However, similar to the potential Sabeco sale, the timing of a potential sale and the manner in which it will be sold are still uncertain. F&N, already the secondlargest shareholder with a 9.5% stake in the acquisition, has expressed its interest in raising its stake. Vinamilk is the dominant player (48% market share) in Vietnam's dairy market, a market where there is further demand growth potential given its young population (42% aged below 25) and lagging milk consumption per capita in Asia (18 kg). Figure 38: Products under the Vinamilk brand Source: Company (TBEV.SI / THBEV SP) 21

22 Initiating with OUTPERFORM We initiate Thaibev with an OUTPERFORM rating and a target price of S$0.85 per share, implying an upside of 14%. Our target price is based on a sum-of-the-parts valuation methodology, given Thaibev's varying market position across its various businesses. Figure 39: Breakdown of sum-of-the-parts Component Units Value Multiple Value to THBEV THBEV spirits DCF Bt mn 444,759 THBEV beer DCF Bt mn 59,258 Non-alcohol and food DCF Bt mn 20,913 F&N (Equity value) FY16 EBITDA Bt mn 6, ,286 FCL (Equity value) P/B Bt mn 47, ,424 Net debt (FY15 end) + minorities Bt mn (44,419) Initiating with an OUTPERFORM rating Target price of S$0.85 implies 14% upside NAV Bt mn 541,222 Number of share Bt mn 25,110 Target price S$ 0.85 Note: SGD/THB of Premium valuation for dominant market share in spirits We value the spirits business based on DCF analysis using a WACC of 7.1% (adjusting WACC for dominant position) and a terminal growth rate of 2.3% which results in an enterprise value of Bt445 bn. Our valuation implies an EV/EBITDA of 16x for the spirits business while consumer staples in Thailand trades at EV/EBITDA of 14.3x with ranging between 13x and 17x. This puts Thaibev's spirits business at the higher end of that range which we believe is reasonable given its dominant position of 90% market share, while its other consumer staples peers in Thailand are much more fragmented. We believe the strength of the spirits business will continue to be unlocked as the other businesses' cash flows start to improve, which has already started in beer. Growing beer business We have also valued the beer business based on DCF analysis using a WACC of 9.3% and a terminal growth rate of 2.3% which gives us an enterprise value of Bt59 bn. This implies an EV/EBITDA valuation of 18.0x for CY16; however, given our growth expectations for Chang Beer, this moves to 12.3x in CY17, below the Thai consumer staples EV/EBITDA of 13.3x and in line with the global brewer companies of 11.5x. Figure 40: Thai consumer staples peers Ticker Company Price Mkt cap (LC) (US$ mn) P/E (x) EV/EBITDA (x) Yield (%) EPS growth (%) 2016C 2017C 2016C 2017C 2016C 2017C 2016C 2017C CPALL.BK C.P. All , % 21% CPF.BK CPF , % 40% BIGC.BK Big C Supercenter , % 13% MAKRO.BK Siam Makro , % 14% TU.BK Thai Union , % 7% ICHI.BK Ichitan % 12% CBG.BK Carabao , % 8% Average % 16% DCF valuation for spirits business implies 16x EV/EBITDA, in line with consumer staples peers DCF valuation for beer business implies EV/EBITDA, in line with consumer staples peers (TBEV.SI / THBEV SP) 22

23 Figure 41: Global alcohol beverage peers Ticker Company Price Mkt cap (LC) (US$ mn) Beer P/E (x) EV/EBITDA (x) Yield (%) EPS growth (%) 2016C 2017C 2016C 2017C 2016C 2017C 2016C 2017C ABI.BR Anheuser-Busch InBev , % 43% SAB.L SABMiller 4, , % 9% CARLb.CO Carlsberg , % 13% HEIN.AS Heineken , % 8% 2502.T Asahi Group Holdings 3, , % 10% CBMS.KL Carlsberg Msia % 6% HEIN.KL Guinness Anchor bhd , % -12% 2501.T Sapporo Holdings , % 15% 2503.T Kirin Holdings 1, , NM 14% Spirits Beer average % 12% DGE.L Diageo 1, , % 9% PERP.PA Pernod Ricard , % 7% UNSP.BO United Spirits 2, , NM 49% RFRG.AS Refresco Gerber , % 14% Spirits average % 20% TBEV.SI Thaibev , % 8% Total average % 10% 9x EV/EBITDA for F&N and non-alcoholic/food valuation in line with market cap We value Thaibev's stakes in F&N at 9x EV/EBITDA, in line with its historical average of 9x. This results in an equity value of S$22,286 mn (at 100% in F&N). Figure 42: F&N historical EV/EBITDA Oct-03 Sep-04 Aug-05 Jul-06 Jun-07 May-08 Apr-09 Mar-10 Feb-11 Jan-12 Dec-12 Nov-13 Oct-14 Sep-15 EV/EBITDA Average + 1 SD - 1 SD For the non-alcoholic and food division our DCF gives us a valuation of Bt20,913 mn, which implies a P/B of 0.8x as of 2015 book value. We believe this is fair given the nearterm losses expected from the non-alcoholic division. F&N's valuation based on a historical average EV/EBITDA of 9x Non-alcohol and food DCF valuation implies a P/B of 0.8x (TBEV.SI / THBEV SP) 23

24 0.8x P/B valuation for FCL, similar to developer peers For FCL, we use a 0.8x historical P/B similar to other developers in Singapore and given that the company re-evaluates its assets on an annual basis. We believe the valuation is fair given that ~80% of FCL's assets and ~60% of EBIT are from investment properties, similar to peers such CAPL which trades at 0.8x. Sustainable beer turnaround will give confidence on extracting more upside P/Es at a 12-17% discount to Thai consumer and global alcohol peers Thaibev's CY16 P/E of 19.3x is at a 17% discount to Thai consumer staples at 23x. Although EPS growth from FY16-18 is lower than its Thai consumer staples peers, we believe Thaibev's 90% dominance in spirits provides a premium for stability. Thaibev trades at a 12% discount to global alcohol peers which have an average P/E of 22x despite having a similar growth profile. Further upside to earnings from potential acquisitions We have not factored in any acquisitions into our target price and further upside could come from further initiatives. In the more immediate term, the corporate exercise to swap the FCL and F&N stakes with TCC is expected this will allow for added flexibility and drive growth through acquisitions. Targets under Thaibev's Vision 2020 include growing overseas and non-alcoholic beverage revenues to account for 50% of revenues. We believe that acquisitions could provide another catalyst for share price performance. As mentioned in the previous section, we believe that acquisitions in the range of 15-20x P/E could drive further earnings upside of 6-11%. Further upside from improving route to market We believe there could be further upside extracted through synergies by addressing overlaps or enhancing the distributions of products on Sermsuk and Thaibev's distribution channels. In the north east, Sermsuk's distribution channels are weak with only about 150 trucks, while Thaibev has 350 trucks and has a strong distribution network given its dominance in the spirits market. There are likely to be other synergies with the provinces in the south and even deciding on innovative routes to market. Enhancing distribution with Big C? Thaibev's distribution on the modern trade channel will continue to be enhanced with TCC's acquisition of Casino Group's 58.6% stake in Big C. Our Thai retail analyst, Warayut Luangmettakul, believes TCC's acquisition could lead to a new era for BIGC with the company potentially turning more aggressive in its store expansion plan given: (1) it will no longer be constrained by Casino Group's conservativeness, (2) TCC's holding of sizeable land plots could help accelerate BIGC's store openings. We believe there could be some potential upside from improved shelf positioning or visibility of promotions of Thaibev's/F&N products. Valuation of FCL on a P/B of 0.8x Undemanding valuations P/E at a 15-17% discount to peers Acquisitions could drive further earnings growth Further synergies could be unlocked through improving the route to market (TBEV.SI / THBEV SP) 24

25 Figure 43: Estimated year-end number of stores for existing Thai retailers E 2017E BIGC large stores BIGC Supermarkets BIGC CVS CPALL (7-11) 8,832 9,532 10,232 MAKRO HMPRO ROBINS GLOBAL Figure 44: Thaibev distribution channel Source: Company data (TBEV.SI / THBEV SP) 25