Bangkok--18 Feb--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of Thai Beverage PLC (ThaiBev) and the rating of ThaiBev’s senior guaranteed debentures at “AA-” with “stable” outlook. The ratings reflect the dominant position of the ThaiBev Group in the Thai alcoholic beverage market, an experienced and capable management team, economies of scale as the largest brewer and distiller, an extensive distribution network, strong and stable cash flow, and a low level of leverage. These strengths are partially offset by an intensely competitive environment and regulatory risk that could slow the growth of alcoholic beverage consumption.
The “stable” outlook is based on the expectation that ThaiBev will maintain its competitiveness and leading position in the beer and spirits markets, although the company is facing high competition from local brewers and spirits importers. TRIS Rating expects ThaiBev to maintain its current conservative financial profile with no huge debt-financed acquisition.
TRIS Rating reported that ThaiBev has maintained its leading position in the Thai beer and spirits markets with 48% and 74% share of the beer and spirits market, respectively. ThaiBev is a holding company that controls over 80 subsidiaries and associated companies. ThaiBev produces and distributes a wide variety of alcoholic beverages including beer, traditional white spirits, brown spirits, admixed whisky, Chinese herb spirits, and Japanese spirits. The brands in its portfolio, such as Mekhong, Sang Som, Mungkorn Thong, Hong Thong and Ruang Khao for spirits and Chang for beer, are well-known and are local market leaders. The majority of ThaiBev’s brands target the economy segment of the alcoholic beverage market, which clearly is the largest segment.
TRIS Rating said, with annual production capacities of 1,550 million liters of beer and 808 million liters of spirits in Thailand, ThaiBev has a certain degree of purchasing power for raw materials. Its 17 distillers located throughout Thailand give the company a logistical advantage. Moreover, ThaiBev’s extensive distribution network and efficient salesforce reinforce its leading position. Currently, the company’s distribution network consists of 2,600 agents, with more than 900 direct sales persons and 400 warehouses, to serve more than 400,000 retail outlets throughout Thailand. ThaiBev’s high operating margin reflects its operating efficiency. The company has generated around Bt15,000 million in funds from operations (FFO) each year for the last three years. ThaiBev’s leverage ratio has improved significantly, its debt to capitalization reduced from a decline of 59% at the end of 2005 to 29% as of 30 September 2007, because the company repaid its huge debts after a capital increase in June 2006. Consequently, its cash flow protection (FFO to total debts) improved from 33% in 2005 to 50% for the first nine months of 2007 (non-annualized).
TRIS Rating also said that the Thai beer market still has room to grow. Per capita consumption is relatively low, compared with the top 20 beer markets around the world. Thailand’s beer market has been dominated by a few producers, but still has a high degree of competition. High advertising budgets, extensive use of promotions, and price cutting were widely used to stimulate sales and gain market share. In moving, government regulation will be a major influence in the public demand for alcoholic beverage. Thai government policy continues to emphasize the negative effects of alcohol consumption on Thai society. Actions implemented to cut alcoholic beverage consumption include excise tax increases, advertising limits, and sales restrictions. These restrictions may cause the Thai alcoholic beverage market to grow at a slower rate.
Thai Beverage PLC (ThaiBev)
Company Rating: Affirmed at AA-
Issue Rating:
TBEV082A: Bt3,000 million senior guaranteed debentures due 2008 Affirmed at AA-
Rating Outlook: Stable