Today, Anheuser-Busch InBev (ABI BB), the world’s largest brewer, confirmed plans to list its Asian business. Bloomberg estimates that ABI BB could raise US$5bn, valuing its Asian business at US$70bn, which implies an FY19 EV/EBITDA multiple of 23x. This suggests that THBEV SP is c26% undervalued at 17x FY19 EV/EBITDA. THBEV SP may receive a valuation boost, and we reiterate Buy.
AB InBev has confirmed its plans to list its Asian business in Hong Kong, according to a statement released today. A Bloomberg report earlier this year stated that the IPO could raise US$5bn, valuing the Asian business at US$70bn. This implies an FY19 EV/EBITDA multiple of 25x. Asia is ABI BB’s most dynamic region, generating a quarter of the growth in operating profit in FY17. ABI BB is the largest foreign brewer in China with 16% market share, as well as an active presence in Vietnam, India, South Korea and several other markets.
The prospective valuation of AB InBev implies that Thai Beverage (THBEV SP) is c26% undervalued. The prospects for THBEV SP’s core business in Thailand and Vietnam are stronger than ABI BB, in our view. ABI BB’s market share is weaker in these countries, while THBEV SP is the dominant incumbent. In China, ABI BB’s largest Asian market, the firm’s market share could be threatened by Heineken’s entry.
Thai Bev’s earnings growth could be driven by a reversal in Thailand and synergy gains in the vibrant Vietnamese market. Vietnam has a burgeoning beer market and Sabeco is the market leader. Thai Bev’s investment in a 54% stake in Sabeco could generate cost and revenue synergies, driving earnings in Vietnam. We expect vibrant growth in beer revenues in the next three years.
There is a high likelihood of a restructuring to cut debt. Since the US$4.8bn investment in Sabeco late last year, THBEV SP has faced a brace of downgrades from equity analysts and credit rating agencies. We expect a value-enhancing restructuring.
We have a Buy recommendation on THBEV SP with 36% upside.