Strategy Note /

Raising a glass to Southeast Asia's reopening

  • Thailand and Vietnam are finally opening to tourism after the pandemic

  • Entertainment will be in full swing after two years of Covid restrictions

  • We view Thai Beverage as an ideal recovery proxy. It is currently at the low end of its 10-year PE valuation range

Raising a glass to Southeast Asia's reopening
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
19 April 2022
Published byTellimer Research

Southeast Asia’s tourism economy is roaring back, after two years of disruption.

Last week, the Thai government announced that, from 1 May, tourists will be able to enter Thailand using only vaccine passports, with antigen tests on arrival. Currently, Thai tourism is constrained by strict Covid regulations, with tourists having to wait up to five days for their documentation to be approved.

Vietnam, meanwhile, announced its full reopening to tourism on 15 March.

Thailand - International tourist arrivals

Vietnam - International tourist arrivals

More tourists = more beer drunk

In both countries, a revival of tourism will jump-start growth in the beer business, which has been severely constrained by Covid. It is worth noting that tourists represent one-third of the beer market for Thai Beverage, on which we have a Buy recommendation.

In Vietnam, bars reopened last month and there are already signs of a recovery in Thailand, with beer volumes up by 33% yoy in February – an 18% rise versus the pre-pandemic level.

High chance a restructuring would cut debt

Thai Bev has been under pressure from rating agencies to cut leverage. It financed its acquisition of Vietnam's Sabeco with US$-denominated debt financing.

We expect a value-enhancing restructuring, where TCC injects FNN SP’s F&B business into Thai Bev in exchange for divesting its associate stake in FNN SP.

THBEV SP is trading at half SAB VN's valuation, despite similar ROE

One-third of Thai Bev’s earnings growth will be driven by Sabeco, but investors would be better served by investing in the parent, in our view.

Thai Bev is trading at just 13.65x FY 23F EV/EBITDA, which is 13% below the Asian peer average.

On a historical basis, Thai Bev is at the bottom end of its 10-year PE and PB valuations.

Thai Beverage - Price to Earnings

Thai Beverage - Price to Book