Investing Into A Recession Proof Company (SGD)
Thai Beverage Public Company Limited is 69.89% owned by Charoen Sirivadhanabhakdi, a prominent billionaire in Thailand.
It has a PE of 16x and pays 3.26% dividend.
The company comprises four business segments: spirits, beer, non-alcoholic beverages, and food.
Spirits is the largest revenue contributor accounting for 61.6% of total revenue.
Beer is the second largest revenue contributor accounting for 25.1% of total revenue. Thai Beverage has three beer brand – Archa, Federbrau and its flagship brand, Chang Beer.
Non-Alcoholic Beverages is the company’s newest segment to the business after the part-acquisitions of Oishi, Sermsuk, and Fraser & Neave (F&N). This segment accounts for 9.6% of total revenue. Familiar brands include 100 Plus, Oishi green tea, F&N, Nutrisoy, Seasons, Magnolia milk, and Fruit Tree juice.
The Food segment is the smallest revenue contributor at 3.8% of total revenue mainly carries Oishi brand food products.
1. Company is *recession proof*
2008/09 recession did not affect ThaiBev’s revenue at all. People drink in good times and drink more in sorrow. Spirits and beer contribute the majority of ThaiBev’s revenue and alcohol can be *addictive* as well which pretty much explains why the company’s revenue rose even during the Great Recession.
2. Stable and growing dividends
Since ThaiBev listed on the Singapore Exchange in 2006, it has been paying a *growing dividend* for the past ten years. Dividend per share increased from 0.22 baht in 2006 to 0.61 baht in 2015. The rising dividend per share reflects the strong cash flow generation of ThaiBev.
3. Excise tax, pricing power and diversification
The Thai government has been increasing the excise tax on alcohol over the last ten years hiking tax rates in 2007, 2008, 2009, 2012, 2013, and 2015. Every time the government increases the tax, ThaiBev has been able to pass down the cost to consumers reflecting its *pricing power*.
A tax hike may affect alcohol consumption at the start but consumers get use to the higher prices eventually. At the same time, ThaiBev has diversified into the non-alcoholic beverage segment with the acquisitions of Oishi, Sermsuk, and F&N in order to mitigate the excise tax hike issue.
4. Debt
ThaiBev funded the acquisition of F&N with debt which is the reason why its debt-to-equity ratio jumped to 1.14 in 2012. Coupled with *strong cash flow generation*, the company used the proceeds from the capital reduction to reduce their debt which is why the debt-to-equity ratio has fallen from 1.14 to 0.37 in 2015.
5. Stakes in F&N, SermSuk, Oishi, and Frasers Centrepoint Limited
F&N, Frasers Centrepoint Limited, SermSuk, and Oishi are public-listed companies on the Singapore and Thailand stock exchanges. ThaiBev owns sizeable stakes in all of them. The combined value of ThaiBev’s stakes in these four companies is S$3.1 billion.
It has a PE of 16x and pays 3.26% dividend.
The company comprises four business segments: spirits, beer, non-alcoholic beverages, and food.
Spirits is the largest revenue contributor accounting for 61.6% of total revenue.
Beer is the second largest revenue contributor accounting for 25.1% of total revenue. Thai Beverage has three beer brand – Archa, Federbrau and its flagship brand, Chang Beer.
Non-Alcoholic Beverages is the company’s newest segment to the business after the part-acquisitions of Oishi, Sermsuk, and Fraser & Neave (F&N). This segment accounts for 9.6% of total revenue. Familiar brands include 100 Plus, Oishi green tea, F&N, Nutrisoy, Seasons, Magnolia milk, and Fruit Tree juice.
The Food segment is the smallest revenue contributor at 3.8% of total revenue mainly carries Oishi brand food products.
1. Company is *recession proof*
2008/09 recession did not affect ThaiBev’s revenue at all. People drink in good times and drink more in sorrow. Spirits and beer contribute the majority of ThaiBev’s revenue and alcohol can be *addictive* as well which pretty much explains why the company’s revenue rose even during the Great Recession.
2. Stable and growing dividends
Since ThaiBev listed on the Singapore Exchange in 2006, it has been paying a *growing dividend* for the past ten years. Dividend per share increased from 0.22 baht in 2006 to 0.61 baht in 2015. The rising dividend per share reflects the strong cash flow generation of ThaiBev.
3. Excise tax, pricing power and diversification
The Thai government has been increasing the excise tax on alcohol over the last ten years hiking tax rates in 2007, 2008, 2009, 2012, 2013, and 2015. Every time the government increases the tax, ThaiBev has been able to pass down the cost to consumers reflecting its *pricing power*.
A tax hike may affect alcohol consumption at the start but consumers get use to the higher prices eventually. At the same time, ThaiBev has diversified into the non-alcoholic beverage segment with the acquisitions of Oishi, Sermsuk, and F&N in order to mitigate the excise tax hike issue.
4. Debt
ThaiBev funded the acquisition of F&N with debt which is the reason why its debt-to-equity ratio jumped to 1.14 in 2012. Coupled with *strong cash flow generation*, the company used the proceeds from the capital reduction to reduce their debt which is why the debt-to-equity ratio has fallen from 1.14 to 0.37 in 2015.
5. Stakes in F&N, SermSuk, Oishi, and Frasers Centrepoint Limited
F&N, Frasers Centrepoint Limited, SermSuk, and Oishi are public-listed companies on the Singapore and Thailand stock exchanges. ThaiBev owns sizeable stakes in all of them. The combined value of ThaiBev’s stakes in these four companies is S$3.1 billion.
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