Singapore Company Focus

Thai Beverage Public Company Refer to important disclosures at the end of this report

Bloomberg: THBEV SP | Reuters: TBEV.SI

DBS Group Research . Equity

10 Sep 2014

BUY S$0.71 STI : 3,342.96

In high spirits

Price Target : 12-Month S$ 0.80 (Prev S$ 0.68) Reason for Report : Revised TP, forecasts, introduction of FY16F Potential Catalyst: Corporate restructuring, operational performance DBS vs Consensus: In line with consensus Analyst Andy SIM CFA +65 6682 3718 [email protected]

Relative Index

0.8 241 0.7

221 201

0.6

181 0.5

161 141

0.4

121 0.3 0.2 Sep-10

101 Sep-11

Sep-12

Thai Beverage Public Company (LHS)

Sep-13

81 Sep-14

Relative STI INDEX (RHS)

Forecasts and Valuation FY Dec (Bt m) 2013A 2014F 2015F 2016F Revenue 155,771 166,191 177,195 186,140 EBITDA 25,489 33,853 36,123 38,741 Pre-tax Profit 23,238 28,420 30,838 33,574 Net Profit 19,130 23,036 24,935 27,087 Net Pft (Pre Ex.) 19,130 23,036 24,935 27,087 EPS (S cts) 3.0 3.6 3.9 4.2 EPS Pre Ex. (S cts) 3.0 3.6 3.9 4.2 EPS Gth (%) (33) 20 8 9 EPS Gth Pre Ex (%) 21 20 8 9 Diluted EPS (S cts) 3.0 3.6 3.9 4.2 Net DPS (S cts) 1.7 1.8 2.0 2.1 BV Per Share (S cts) 14.7 16.5 18.4 20.6 PE (X) 23.7 19.7 18.2 16.8 PE Pre Ex. (X) 23.7 19.7 18.2 16.8 P/Cash Flow (X) 25.1 18.2 19.4 17.3 EV/EBITDA (X) 20.4 14.9 13.8 12.6 Net Div Yield (%) 2.4 2.6 2.8 2.9 P/Book Value (X) 4.8 4.3 3.9 3.4 Net Debt/Equity (X) 0.6 0.4 0.3 0.2 ROAE (%) 21.8 23.1 22.3 21.7 Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:

0 3.6 B: 10

4 3.8 S: 1

ICB Industry : Consumer Goods ICB Sector: Beverages Principal Business: ThaiBev is a F&B company with exposure in alcoholic, non-alcoholic food and beverages.

Source of all data: Company, DBS Bank, Bloomberg Finance L.P

www.dbsvickers.com ed: TH / sa: TAT

Reaffirm BUY with higher TP of S$0.80

•

Project growth to continue into 2H14, FY15

•

Corporate restructuring an added catalyst on top of positive operating performance

•

Upside revision to FY15 forecasts possible if management sustains strong margins

Reaffirm BUY, TP raised to S$0.80. Despite a solid YTD share price performance, we expect further upside and reaffirm our BUY recommendation with a higher TP of S$0.80. We believe the Group will continue on its growth profile - 2Q14 results were within our expectations, with net profit up by 12% to THB5.5bn. Spirits continued its stellar performance and we expect this segment to remain as the key contributor to the Group. Beer should be profitable in FY14F, for the first time since FY08. Non-Alcoholic Beverage is likely to remain in the investment phase within our forecast periods.

Price Relative S$

•

4 4.2 H: 0

Gearing reverting to pre-FNN acquisition level. Management has not shared much detail on its plans for the associate stakes in FNN and FCL. We believe the long-term plan is still to focus on its vision to be a leading F&B player; thus, the eventual disposal of FCL, in our view, is likely. Assuming a monetisation of its FCL stake (worth c.S$1.4bn now), we estimate this will further lower ThaiBev’s net gearing to 0.2x, to the level before it bought its FNN stake, and from a high of 1.2x as of end-FY12. We believe a step towards restructuring could send a positive signal to the market and provide a catalyst for the share price. TP raised to S$0.80 on higher earnings, roll over to FY15F. We revised FY15F/16F estimates up by 4% each. Upside surprise to our forecasts could come from a fasterthan-expected turnaround in non-alcoholic beverage segment and/or beer contribution. Valuation looks undemanding at 18.2x/16.8x FY15F/16F PE, on the back of sustained growth with improving consumer sentiments, and a market leader in the Thai market. Further catalysts could come from the eventual divestment/ monetisation of its 28.5% stake in FCL and/or restructuring of its stake in FNN. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Siriwana Co.Ltd (%) Maxtop Management Corp (%) Free Float (%) Avg. Daily Vol.(‘000)

25,110 17,828 / 14,159 45.3 14.7 40.0 21,491

Company Focus Thai Beverage Public Company

Maintain BUY: In High Spirits Maintain BUY, TP raised to S$0.80. We reaffirm our BUY recommendation and raised our TP to S$0.80 as we roll forward our sum-of-parts valuation to FY15F, coupled with 4% upward adjustments to our forecasts. ThaiBev’s share price has done well and is up by c.30% YTD, but we believe there is still further upside over the medium term, and would advocate accumulating on pullbacks for more conservative investors (given the recent share price surge). Growth projected to continue. We project the Group’s earnings growth momentum to continue into 2H14 and into FY15F (albeit at a slower pace vis-a-vis FY14F). We also like its leading market position, wide portfolio of brands/ products, improving consumer sentiments in Thailand and stable raw material prices. Further catalysts, in our view, could come from positive signals with respect to restructuring of its associate stakes in FNN and FCL, though timing is uncertain. Valuation is still not excessive, at 18.2x/16.8x FY15F/16F PE, marginally below regional peers’ average. Key risks to our view are alcohol excise duty hike without a commensurate increase in ASP causing a sustained slump in sales volume, further political uncertainty undermining investors’ and consumers’ confidence in Thailand.

2Q14 recap – growth momentum flowing from 1Q 2Q Group net profit grew to THB5.5bn. ThaiBev’s 2Q14 performance continued from 1Q’s growth momentum, with net profit up by 12% to THb5.5bn. Revenue grew by 9% to THB40bn, driven by higher Spirits (+12.5%), Beer (+10%) and Food (+8%) contributions, offset partially by weaker NonAlcoholic Beverage (NAB) (-11%). Overall gross margins inched up by 1.4ppts to 29.2% in 2Q14. At half time, net profit has grown by 37% y-o-y to THB11.5bn, accounting for 50% of our FY14F estimates. Growth to continue into 2H14, FY15F. We project the Group’s positive earnings momentum to continue into 2H14, and we believe it is on track to meet our estimates, equating to 20% y-o-y growth. This is a step down from 1H14’s 37% y-o-y net profit growth, but we still think the 20% growth is still respectable. Looking ahead, we expect 3Q results to show a slower y-o-y growth, being a traditionally slower quarter but to pick up the pace in 4Q on the back of a lower sales volume base last year (due to excise hike) and improving consumer sentiments in Thailand. We summarise our views on the key segments within the Group, as follows:

ThaiBev 1H14 Segmental Sales contribution

ThaiBev 1H14 Segmental Net Profit contribution

Source. Company

Source. Company

Spirits going strong and steadily Benefits of market leadership and wide brand portfolio. Spirits remained the Group’s largest revenue and profit contributor, accounting for c.64% and 99.8% as of 1H14 respectively. Despite recent excise hikes in Sep’13 and weak consumer sentiments, volume growth remained relatively resilient and grew by 3.1% y-o-y, while revenue benefitted from increases in selling prices. Net profit for the Spirits segment grew by 19.3% to THB4.9bn, on the back of revenue growth of 12.5% to THB25.3bn.

Page 2

We expect positive performance from the Spirits segment to continue into 2H14, driven by stable margins and volume growth as seen in 1H14. While 3Q is a seasonally weaker quarter, we still expect to see some y-o-y topline growth (albeit lower compared to 1H14) on the back of higher ASP compared to 3Q13 arising from excise hikes in 4Q13, improving consumer sentiments, helped by the Group’s wide portfolio of products to cater to the wide segment of consumers. We are assuming 1% Spirits’ volume growth for FY14F, compared to 1.7% y-o-y growth registered for 1H14.

Company Focus Thai Beverage Public Company

Sales volume stabilised after dip in FY13 post-excise S a les Vol (m litres) 170

Spirits revenue and volume on gradual uptrend

y oy chg (%) 20.0%

160 150 140

S a les Revenue (THB bn) 35.0

15.0%

30.0

10.0%

25.0

5.0%

20.0

0.0%

15.0

-5.0%

10.0

-10.0%

5.0

-15.0%

0.0

S a les Vol (m litres) 160 140 120 100 80

130 120 110 100 90 80

Spirits' sales revenue and volume on uptrend . 4Q trailing vol dip in 2013 after strong 2012 and excise duty increase. But decline bottomed out and currently showing reversal trend

1Q09

1Q10

1Q11

Spirits volume (m litres)

1Q12

1Q13

1Q09

1Q10

1Q11

1Q12

1Q13

Spirits Revenue (THB bn) Vol. Trailing 4Qtrs (m litres) [RHS] Linear (Spirits Revenue (THB bn)) Linear (Vol. Trailing 4Qtrs (m litres) [RHS])

1Q14

yoy chg (%) [RHS]

Source. Company, DBS Bank

Beer posted third consecutive quarter of profits in 2Q14

Expect Beer to be profitable in FY14, first since FY09

Beer net profits (THB m) Third consecutive quarter of net profits from beer segment despite lower volumes, offset by higher selling prices and lower SG&A

800 600

1,000

2,163 1,702

2,000 1,500

500

1,000

525

500

400

673 695

338

0

0

200

(500)

FY06

FY08

FY10

FY12

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

(200)

(800)

Source. Company, DBS Bank

Beer to be profitable in FY14, first FY profits since 2008 Profitable for third consecutive quarter. In 2Q14, beer continued to stay profitable with a net profit of THB81m, a reversal from last year’s THB143m loss. This was despite a 3.5% decline in sales volume, which was offset by a higher ASP. Gross margins were also higher at 18% vis-à-vis 14.8% in 2Q13 arising from higher ASP since management raised prices higher than excise increases. Control of expenses. While sales volumes have suffered due to higher selling prices and uncertain political situation impacting on-premise consumption, the profitability came from tight control of selling and distribution expenses. As highlighted in our previous report, management seems to have adopted the strategy to “ring-fence” its expenses to keep profitability in check and ensure that the spending per hectoliter of sales is constant and reflects actual sales volume.

FY16F -500

(1,031) (1,176) (1,632)(1,643)

(1,500) (2,000)

(400) (600)

FY14F (447)

(1,000)

0

Page 3

Be er sales vol (m litres)

Ne t profit (THB m) 2,500

1,000

20

1Q14

Source. Company, DBS Bank

Ne t profit (THB m)

40

0 1Q08

-20.0% 1Q08

60

Net Profit

-1,000 Projected turnaround in net profit in FY14 and to continue. We could be a tad conservative Vol (m litres) [RHS] given 1H14 profits larger than our FY14 forecasts

Source. Company, DBS Bank’s estimates

Beer profitability to continue, though contribution is still small. Anything larger will be a positive surprise. At this juncture, we are projecting a small profit contribution from the Beer segment (compared to Spirits) in FY14F-16F of c.THB525m – 695m, accounting for c.2-3% of the Group’s profits. This is based on our assumption that volume and ASP growth will be tepid, coupled with stable margins. However, anything more could post a positive surprise and could offer upside to our forecasts. Non-Alcoholic Beverage Still in investment stage (i.e. loss-making). Non-Alcoholic Beverage continues to be in a loss-making position, and we project this to continue into our forecast years. Fortunately, for ThaiBev, given the strength and contribution of its Spirits segment, the losses can be seen as an investment phase. The bright spot in 2Q was its lower losses, at THB374m (2Q13: -THB513m) arising from a cutback in A&P expenses.

Company Focus Thai Beverage Public Company

Some improvements in market share in NAB in 2Q14. This was possibly due to efforts to tap on ThaiBev’s distribution on underserved areas. Management estimated that its market share for est cola stood at c.14%, which was marginally

Non-Al Beverage net losses, albeit smaller by FY16F

ThaiBev Net D/E on declining trend 1.40

Non-Al Bev profits (THB m)

500

1.20

43 0 1H13

1H14

FY12

FY13

FY14

FY15

FY16

(569)

(1,500)

(2,000)

(671)

(750)

1.00

0.60 0.40

Project losses from Non-Al Bev segment to widen in FY14F before narrowing from FY15F onwards. Losses cotinued in our forecast years.

(1,384)

(1,464)

1.22

Net D/E declining, and revert to c.0.23x by FY16F. Assume monetization of FCL, net D/E will drop further (dotted grey line).

0.80

(500)

(1,000)

higher than the 11-13% share indicated during the 1Q results conference. The improvement could have arisen from tapping on ThaiBev’s cash van distribution, particularly in the Northeast and Northern parts of Thailand.

0.65 0.56 0.45

0.33 0.24

0.20

0.29 0.17

0.25

0.19

0.11

0.34 0.23 0.11

0.00 (1,884)

FY06

FY08

FY10

FY12

1H14

0.03 -0.04

FY15F

-0.20 Net Gearing (x) Net Gearing, pro-forma assume FCL stake disposal (x)

Source. Company, DBS Bank’s estimates

Others Timeline for launch of FNN’s products in Thailand? The financial community could be concerned about the lead time for the launch and distribution of FNN’s 100Plus by ThaiBev in Thailand. Besides ThaiBev management’s explanation that it takes time for the necessary approvals, we believe there are also matters to be ironed out properly. For instance, 100Plus was previously launched in Thailand by FNN, but was met with limited success. While this could be due to the distribution reach, an oft-cited key reason was the taste profile. As such, we believe there could be more attention paid on brand positioning, taste formulation, etc. Associate stakes in FNN & FCL. Expect streamline and focus on F&B, though timing uncertain. ThaiBev’s management were unable to share details on the plans for its associate stakes in both FNN and FCL at this juncture. We continue to take the view that ThaiBev will eventually streamline and focus its investments on F&B-related business. Thus, we

Page 4

Source. Company, DBS Bank’s estimates

believe its investment in FCL, in which its shareholding arose from dividend-in-specie from FNN, is non-core; and we should eventually see ThaiBev’s shareholding in FCL being withered down. However, at this stage, we are uncertain on the timing and the form it will take. ThaiBev’s FCL stake worth S$1.4bn; monetising it will bring net gearing down to 0.2x. That said, based on current market price, ThaiBev’s stake in FCL is worth about S$1.4bn (or THB35.8bn). Assuming this is monetised and utilised to pare down existing debts, ThaiBev’s gearing would be reduced to 0.2x (as of end 2Q14) from the current 0.57x. This was its gearing level prior to the acquisition of FNN, and down significantly from 1.22x as at end-FY12. This appears to vindicate concerns on ThaiBev’s high gearing and ability to maintain its payout ratio following its stake purchase of FNN in 3Q12.

Company Focus Thai Beverage Public Company

Segmental Analysis Revise FY15F/16F forecasts up by 4% each. We revised our assumptions and adjusted our FY15F/16F forecasts up by 4% as we raise our Spirits’ volume growth and ASP assumptions to 3% and 5% respectively, from 1% and 4% previously. This is on the back of improving consumer sentiments in Thailand, and thus we expect implied ASP of Spirits to increase with a higher proportion of brown spirits vis-à-vis white spirits. For the Beer segment, we increased our margin assumptions on expectations that management will continue to focus on maintaining and growing its profitability, albeit from a low base (see changes to forecasts in table on next page). Possible upside adjustment if margins are sustained or NAB turns around. Thus, we are projecting 20%/8%/9% EPS growth for FY14F/15F/16F. While growth looks like it is a step down following FY14F’s 20% y-o-y growth, we are penciling in conservative assumptions, in our view. We are assuming a contraction in margins for Spirits in FY15F/16F on expectations of a focus reversion to brand building efforts, along with an improvement in consumer sentiments in Thailand.

0.5% change in Spirit’s margins = 1.8% in net profit. Our forecasts are most sensitive to the performance of its Spirits segment. We ran a sensitivity analysis and note that a 0.5% up/down revision in Spirits’ margins will have a larger net 1.8% change in ThaiBev’s FY15F forecasts. The resultant impact on our TP is S$0.02, assuming all other factors remain constant (see tables on next page). Thailand Consumer Sentiments on the mend since coup

80

T H CONSUMER CONFIDENCE INDEX NADJ - EC. A GGREGATED Rebounded from low in Apr'14, just before coup

75

70

65

60

55

That said, earnings could surprise on the upside if management is able to achieve higher sales revenue growth vs our current expectations, achieve the same level of margins as seen in 1H14 in its Spirits segment, achieve better profitability from Beer and/or engineer a turnaround in its Non-Alcoholic Beverage segment faster than expected on the back of improving consumer sentiments in Thailand.

Valuation Maintain BUY, TP raised to S$0.80. We reaffirm our BUY recommendation and raised our TP to S$0.80 as we roll forward our sum-of-parts valuation to FY15F, coupled with upward lift in our forecasts by c.4% on the back of higher revenue from Spirits and better margin assumptions for the Beer segment. Further upside seen on continued growth and increased confidence. ThaiBev’s share price has done well and is up by c.30% YTD, and c.12% since its 2Q results announcement. But, we believe there is still further upside over the horizon. Looking nearer term into 2H14, we expect the positive performance to continue, on the back of its leading market position, wide portfolio of brands/ products, improving

Page 5

50 Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Source: ThomsonReuters, DBS Bank

consumer sentiments in Thailand and stable raw material prices. Further catalysts, in our view, could come from positive signals from the restructuring of its associate stakes in FNN and FCL. Valuation is still not excessive, at 18.2x/16.8x FY15F/16F PE, still marginally below regional peers’ average. Key Risks Risks. Key downside risks include further hikes in excise duties without a commensurate increase in ASP, impacting on margins; increase in excise that dampen demand in the near term; and further volatility in the political scene whereby consumer sentiments go south again.

Company Focus Thai Beverage Public Company

DBS’ forecasts changes – FY14F to FY16F THB m

Old FY14

FY15

FY16

New FY14

FY15

FY16

chg FY14

chg FY15

chg FY16

Sales Spirits

107,979

112,331

118,015

107,979

116,780

122,689

0%

4%

4%

Beer NAB Food Elimination Total

34,088 17,869 6,335 (79) 166,191

34,769 18,762 6,968 (82) 172,749

36,174 19,700 7,665 (86) 181,468

34,088 17,869 6,335 (79) 166,191

34,769 18,762 6,968 (84) 177,195

36,174 19,700 7,665 (88) 186,140

0% 0% 0% 0% 0%

0% 0% 0% 3% 3%

0% 0% 0% 3% 3%

EBIT Spirits

26,887

27,072

28,442

26,887

28,027

29,445

0%

4%

4%

341

348

362

511

695

723

50%

100%

100%

NAB Food Elimination Total

(2,502) 253 73 25,052

(1,876) 348 73 25,965

(985) 383 73 28,275

(2,502) 253 73 25,223

(1,876) 348 73 27,268

(985) 383 73 29,640

0% 0% 0% 1%

0% 0% 0% 5%

0% 0% 0% 5%

PBT PAT

28,312 22,966

29,599 23,983

32,269 26,083

28,420 23,036

30,838 24,935

33,574 27,087

0% 0%

4% 4%

4% 4%

Spirits margins Beer margins

24.9%

24.1%

24.1%

24.9%

24.0%

24.0%

0.0%

-0.1%

-0.1%

1.0%

1.0%

1.0%

1.5%

2.0%

2.0%

0.5%

1.0%

1.0%

Beer

Comments

Assume higher vol/ ASP in FY15/16

Higher revenue growth assumed Tighter control of A&P assumed

Assume higher A&P for Spirits Assume tighter control of expenses

Source: DBS Bank’s estimates

Sensitivity analysis – 0.5% change in Spirits segment margins lead to 1.8% change in FY15F earnings, all else being constant FY15F

Gross margins 31.5%

32.0%

32.5%

33.0%

33.5%

34.0%

1.8%

3.7%

5.5%

7.3%

9.1%

11.0%

7.5%

0.0%

1.8%

3.7%

5.5%

7.3%

9.1%

8.0%

-1.8%

0.0%

1.8%

3.7%

5.5%

7.3%

8.5% 9.0%

-3.7% -5.5%

-1.8% -3.7%

0.0% -1.8%

1.8% 0.0%

3.7% 1.8%

5.5% 3.7%

9.5%

-7.3%

-5.5%

-3.7%

-1.8%

0.0%

1.8%

10.0%

-9.1%

-7.3%

-5.5%

-3.7%

-1.8%

0.0%

7.0%

SG&A

Source: DBS Bank’s estimates

Sensitivity analysis – 0.5% change in Spirits segment’s margins lead to $0.02 change in TP, all else being constant TP

SG&A

Gross margins 31.5%

32.0%

32.5%

33.0%

33.5%

34.0%

7.0%

0.82

0.85

0.87

0.89

0.91

0.93

7.5%

0.80

0.82

0.85

0.87

0.89

0.91

8.0%

0.78

0.80

0.82

0.85

0.87

0.89

8.5% 9.0%

0.76 0.74

0.78 0.76

0.80 0.78

0.82 0.80

0.85 0.82

0.87 0.85

9.5%

0.72

0.74

0.76

0.78

0.80

0.82

10.0%

0.69

0.72

0.74

0.76

0.78

0.80

Source: DBS Bank’s estimates

Page 6

Company Focus Thai Beverage Public Company

Sum-of-parts valuation

Thai Bev - core business

THB bn 472.8

THB/share 18.83

S$/share 0.75

31.7 43.2 (39.5) 508.2

1.26 1.72 (1.57) 20.24

0.05 0.07 (0.06) 0.80

Share of FNN Share of FCL

Less: Net Debt

Methodology/ Basis Enterprise value - DCF, WACC 7.6%, t= 3% Based on 28.5% stake, at market px of S$3.05/share Based on 28.5% stake, at DBS TP of S$2.08/share FY15F net debt

Source: DBS Bank’s estimates

Peer valuation table

Company Thai Beverage PCL

Curr SGD

Last Px 0.71

Mkt Cap (US$ m) 14,159

Hist. PE (x) 23.7

PE Curr Yr (x) 19.7

PE Nxt Yr (x) 18.2

P/EBITD A Hist 16.5

P/EBITD A Curr 17.7

P/B (x) 4.7

P/S (x) 2.9

Regional Beverage Kirin Holdings Co Ltd Asahi Group Holdings Ltd Suntory Beverage & Food Ltd Sapporo Holdings Ltd Coca-Cola Amatil Ltd Hite Jinro Co Ltd China Foods Ltd

JPY JPY

1406.50 3375.50

12,773 15,366

32.3 23.2

25.9 21.2

21.0 18.9

4.6 7.8

8.1 10.3

1.2 1.8

0.6 0.9

JPY JPY AUD KRW HKD

3760.00 441.00 9.18 22300.00 3.41

10,986 1,646 6,495 1,528 1,249

31.4 na 147.6 29.6 na 52.8

23.8 1473.2 17.4 23.5 na 22.4

19.5 19.0 16.5 21.0 40.2 19.3

7.0 3.9 6.7 6.8 51.4 6.1

9.1 10.8 9.3 11.4 17.7 9.8

2.1 1.2 4.1 1.1 1.6

0.9 0.3 1.4 0.9 0.4

Global Liqour/ Spirits Diageo PLC Pernod Ricard SA Remy Cointreau SA Davide Campari-Milano SpA Constellation Brands Inc

GBp EUR EUR EUR USD

1817.50 90.06 61.48 5.96 86.88

74,076 30,963 3,860 4,480 16,720

19.5 23.1 48.4 23.2 15.2 25.9

18.4 18.1 34.3 22.6 20.5 22.8

17.0 16.6 29.2 19.3 18.3 20.1

12.1 10.2 18.2 10.5 10.3 12.3

14.4 13.3 19.7 13.7 13.3 14.9

6.7 2.1 2.9 2.5 3.2

4.4 3.0 2.9 2.3 2.9

EUR EUR GBp DKK USD HKD MYR

87.12 58.67 3441.50 537.00 72.15 58.70 13.20

181,485 43,773 89,993 14,505 13,359 9,585 1,250

20.2 24.9 26.4 14.9 19.3 31.8 20.0

21.0 19.5 21.7 14.7 16.5 30.5 19.5

19.1 17.5 19.6 13.2 16.4 26.1 18.7

9.9 8.4 15.6 6.1 12.9 na 12.7

12.1 10.4 15.7 9.3 11.8 15.3 12.6

3.5 2.9 3.5 1.2 1.5 4.3 11.1

4.0 1.8 5.3 1.2 3.2 2.3 2.5

MYR

12.50

1,212

19.6 22.1

20.0 20.4

19.0 18.7

13.8 11.3

14.3 12.7

19.7

2.5

SGD SGD SGD

3.77 1.37 0.52

1,838 1,224 533

31.9 20.7 32.9 28.5

28.9 21.2 na 25.0

23.5 19.1 14.2 18.9

21.3 15.3 11.3 16.0

18.0 15.3 5.5 12.9

6.2 3.4 2.3

3.6 2.8 1.1

31.2

22.0

20.1

10.7

12.4

Breweries Anheuser-Busch InBev NV Heineken NV SABMiller PLC Carlsberg A/S Molson Coors Brewing Co Tsingtao Brewery Co Ltd Guinness Anchor Bhd Carlsberg Brewery Malaysia Bhd Singapore-listed F&B peers Petra Foods Ltd Super Group Ltd/Singapore Del Monte Pacific Ltd

Source: Bloomberg Finance L.P., DBS Bank

Page 7

Company Focus Thai Beverage Public Company

Shareholding structure of ThaiBev & FNN/ FCL, and shareholding interest in Oishi and Serm Suk Pcl.

P ublic 34.1%

65.9% P ublic

S pirits

Non-alcoholic / F ood

Be er

79.7%

28.5%*

59.5%*

64.7%

*FNN/ FCL now separate listed entities; shareholding figures reflect % in each of FNN/FCL

Notes: FNN & FCL held as associates under ThaiBev. Based on current market values, ThaiBev’s stakes in FNN and FCL are worth S$1.23bn and S$1.4bn respectively. Source: Company website, DBS Bank

Page 8

12%*

Company Focus Thai Beverage Public Company

Key Assumptions FY Dec Sprits vol gwth (%) Spirits ASP gwth (%) Beer vol gwth (%) Beer ASP gwth (%) Non-Alc Bev rev gwth (%)

2012A

2013A

2014F

2015F

2016F

3.4 6.3 4.9 (0.2) 160.5

(1.6) 9.0 (9.0) 5.3 (39.9)

1.0 7.0 (10.0) 15.0 5.0

3.0 5.0 2.0 0.0 5.0

2.0 3.0 2.0 2.0 5.0

2012A

2013A

2014F

2015F

2016F

93,161 34,386 28,294 5,319 (116) 161,044

99,916 32,935 17,018 5,976 (74) 155,771

107,979 34,088 17,869 6,335 (79) 166,191

116,780 34,769 18,762 6,968 (84) 177,195

122,689 36,174 19,700 7,665 (88) 186,140

32,672 4,037 6,412 2,046 255 45,422

32,220 4,876 4,272 2,398 (28) 43,738

35,849 6,136 4,125 2,407 (29) 48,487

37,953 6,259 4,591 2,648 (31) 51,420

39,874 6,511 4,820 2,913 (32) 54,086

35.1 11.7 22.7 38.5 (219.8) 28.2

32.2 14.8 25.1 40.1 37.8 28.1

33.2 18.0 23.1 38.0 37.2 29.2

32.5 18.0 24.5 38.0 36.7 29.0

32.5 18.0 24.5 38.0 36.7 29.1

Beer volume to slump on excise hikes in Sep’13, offset by higher ASP increases.

Segmental Breakdown FY Dec

Revenues (Bt m) Spirits Beer Non-Alcoholic Bev. Food Others Total Gross profit (Bt m) Spirits Beer Non-Alcoholic Bev. Food Others Total Gross profit Margins (%) Spirits Beer Non-Alcoholic Bev. Food Others Total Income Statement (Bt m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)

Source: Company, DBS Bank

Page 9

2012A

2013A

2014F

2015F

2016F

161,044 (115,622) 45,422 (24,563) 20,858 763 923 (1,327) 12,688 33,905 (5,146) (266) 0 28,493 15,805 22,544

155,771 (112,033) 43,738 (22,478) 21,260 795 3,434 (2,251) 0 23,238 (4,236) 128 0 19,130 19,130 25,489

166,191 (116,871) 49,321 (24,098) 25,223 700 3,948 (1,451) 0 28,420 (5,384) 0 0 23,036 23,036 33,853

177,195 (124,234) 52,961 (25,693) 27,268 700 4,007 (1,137) 0 30,838 (5,903) 0 0 24,935 24,935 36,123

186,140 (129,509) 56,630 (26,990) 29,640 700 4,087 (853) 0 33,574 (6,487) 0 0 27,087 27,087 38,741

21.8 27.4 21.7 136.8

(3.3) 13.1 1.9 (32.9)

6.7 32.8 18.6 20.4

6.6 6.7 8.1 8.2

5.0 7.2 8.7 8.6

28.2 13.0 17.7 40.3 18.5 12.7 37.0 15.7

28.1 13.6 12.3 21.8 9.8 9.6 57.8 9.4

29.7 15.2 13.9 23.1 12.5 12.0 51.2 17.4

29.9 15.4 14.1 22.3 13.3 12.8 50.4 24.0

30.4 15.9 14.6 21.7 14.2 13.7 49.1 34.8

Margins Trend 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 2012A

2013A

Operating Margin %

2014F

2015F

2016F

Net Income Margin %

Interest costs to progressively come off as loans are repaid with dividends, capital reduction from associates.

Company Focus Thai Beverage Public Company

(4.9) (13.4) (21.0) (17.2)

27.7 48.3 66.1 63.8

(8.3) (8.6) (3.5) (10.6)

(2.5) (9.0) (16.7) (7.5)

27.8 14.6 13.4

28.5 12.1 11.6

28.3 15.8 14.9

30.0 16.6 14.5

29.2 14.2 13.8

2012A

2013A

2014F

2015F

2016F

Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets

45,320 104,320 10,897 4,547 32,972 3,583 6,047 207,686

46,827 75,558 11,220 5,108 34,837 3,891 5,888 183,329

47,703 73,394 11,163 9,543 34,021 4,098 5,888 185,809

48,412 75,801 11,107 7,178 36,190 4,369 5,888 188,945

48,654 78,288 11,050 7,276 37,730 4,590 5,888 193,476

ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.

16,007 5,108 9,478 88,146 3,975 81,376 3,595 207,686

12,357 5,202 8,671 54,343 4,763 94,286 3,707 183,329

12,357 3,711 11,408 44,343 4,763 105,521 3,707 185,809

12,357 3,948 11,927 34,343 4,763 117,901 3,707 188,945

12,357 4,116 12,511 24,343 4,763 131,679 3,707 193,476

Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)

28,016 (99,606) 8.2 16.4 102.0 1.0 1.5 0.3 1.2 1.2 4.5 3.5

30,742 (61,591) 8.8 16.8 110.5 0.8 1.9 0.3 0.6 0.7 6.9 4.7

28,888 (47,157) 8.8 14.4 111.3 0.9 1.9 0.5 0.4 0.4 8.5 5.2

30,573 (39,521) 8.7 11.6 106.7 0.9 1.9 0.4 0.3 0.3 10.3 5.8

31,581 (29,424) 8.8 11.8 107.8 1.0 1.9 0.4 0.2 0.2 12.3 0.0

Balance Sheet (Bt m) FY Dec

Source: Company, DBS Bank

Page 10

20% 15%

30,000

10%

25,000 5%

20,000

0%

15,000 10,000

-5%

5,000

-10%

0

-15%

Revenue

2Q2014

(5.9) 32.5 18.5 42.6

Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)

25%

35,000

1Q2014

40,024 (28,318) 11,707 (6,023) 5,684 136 1,151 (348) 0 6,622 (1,142) 41 5,522 5,522 6,970

4Q2013

41,043 (28,726) 12,318 (5,494) 6,823 161 675 (379) 0 7,280 (1,342) 30 5,969 5,969 7,659

3Q2013

44,742 (32,076) 12,665 (5,594) 7,071 177 1,133 (405) 0 7,977 (1,329) 30 6,678 6,678 8,382

40,000

2Q2013

35,041 (25,057) 9,984 (5,728) 4,257 96 1,298 (775) 0 4,875 (846) 47 4,077 4,077 5,650

30%

45,000

1Q2013

36,834 (26,588) 10,246 (4,860) 5,386 382 761 (514) 0 6,014 (1,123) 32 4,923 4,923 6,528

50,000

4Q2012

2Q2014

3Q2012

1Q2014

2Q2012

Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA

Revenue Trend 4Q2013

1Q2012

Quarterly / Interim Income Statement (Bt m) FY Dec 2Q2013 3Q2013

Revenue Growth % (QoQ)

Asset Breakdown (2014) Debtors 2.4%

Net Fixed Assets 28.3%

Assocs'/JVs 43.5%

Inventory 20.2% Bank, Cash and Liquid Assets 5.7%

Project D/E to revert to preFNN acquisition level by FY16F.

Company Focus Thai Beverage Public Company

Cash Flow Statement (Bt m) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (Bt) Free CFPS (Bt)

Capital Expenditure 2012A

2013A

2014F

2015F

2016F

33,905 3,981 (5,369) (923) (576) (11,291) 19,728 (4,664) 13 (90,112) 0 (134) (94,897) (9,157) 85,927 0 (1,353) 75,417 857 1,105 0.8 0.6

23,238 3,935 (5,005) (3,434) (2,428) 1,783 18,089 (4,619) 40 1 34,998 2,378 32,798 (10,816) (38,561) 0 (1,772) (51,148) 820 559 0.8 0.5

28,420 3,983 (2,647) (3,948) (883) 0 24,925 (4,800) 0 0 6,113 0 1,313 (11,802) (10,000) 0 0 (21,802) 0 4,436 1.0 0.8

30,838 4,150 (5,384) (4,007) (2,204) 0 23,393 (4,800) 0 0 1,600 0 (3,200) (12,555) (10,000) 0 0 (22,555) 0 (2,362) 1.0 0.7

33,574 4,316 (5,903) (4,087) (1,592) 0 26,308 (4,500) 0 0 1,600 0 (2,900) (13,308) (10,000) 0 0 (23,308) 0 100 1.1 0.9

4850 4800 4750 4700 4650 4600 4550 4500 4450 4400 4350 2012A

2013A

Source: Company, DBS Bank

Target Price & Ratings History

0.73

S$

0.68

4 0.63 0.58

2

3

0.53

1 0.48 0.43 Sep-13

Jan-14

May-14

Sep-14

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

Page 11

1: 2:

Cl o s i n g Ta rg e t Pri c e Pri c e 15 Nov 13 0.53 0.57 28 Feb 14 0.56 0.56

3:

15 May 14

0.61

0.68

Buy

4:

15 Aug 14

0.64

0.68

Buy

S.No .

2014F

2015F

Capital Expenditure (-)

Da te

R a ti n g Hold Hold

2016F

Company Focus Thai Beverage Public Company

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.

ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 31 August 2014, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates has a proprietary position in Thai Beverage Public Company recommended in this report as of 31 July 2014. 2.

DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 31 July 2014.

3.

Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the company mentioned.

Page 12

Company Focus Thai Beverage Public Company

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia

This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong

This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia

This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia

This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR") (formerly known as HwangDBS Vickers Research Sdn Bhd). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR Singapore

This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand

This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) rd having its office at PO Box 506538, 3 Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States

Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

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