The biggest gainer among Singapore’s stocks this year is a foreigner. Thai Beverage’s return this year is almost triple that for the second-best stock in the Straits Times Index.
Singapore’s equities market, by contrast, is a laggard in Southeast Asia, suffering from lacklustre growth at banks, developers and oil-rig builders.
Malaysia’s Affin Hwang Asset Management Bhd and London’s J O Hambro Capital Management Ltd are buying Thai Beverage shares, convinced the stock has further to climb despite record valuations, as it offers a haven from market turmoil around the world and may benefit from any restructuring plans.
“With slowing global growth, whatever shows potential or sustainable growth attracts a premium,” Kar Tzen Chow, Kuala Lumpur-based fund manager at Affin Hwang Asset, which oversees about $7.6 billion, said by phone. “ThaiBev’s spirits business continues to be stable and the beer business has shown a recovery.”
Thailand is betting on more than $18 billion in stimulus measures to help boost local demand and offset an export slump. The nation’s central bank has forecast economic expansion at 3.1% this year, compared with growth of 1% to 3% for Singapore, whose economy is among the most vulnerable in Asia to swings in global demand. More than 90% of Thai Beverage’s revenue came from Thailand in 2015, data by Bloomberg show.
“The fundamentals for Thai Beverage are very strong, with earnings supported by increasing domestic consumption in Thailand,” Nicholas Teo, a trading strategist at KGI Fraser Securities Pte in Singapore, said by phone. “In contrast, profits at traditional Singapore industries such as banks, shipyards and real estate are deteriorating.”
Billionaire Charoen Sirivadhanabhakdi, who expanded his property business amid government measures to curb alcohol consumption in Buddhist Thailand, was forced to list his Thai beverage unit in Singapore in 2006 after activists and monks held protests to block a local share sale by the company. Thai Beverage, which sells Chang beer, Blend 285 Whiskey and SangSom rum, has grown to become Southeast Asia’s largest beverage stock by market value.
The surge in Thai Beverage will continue as analysts raise their earnings estimates to reflect greater contribution from its beer business, according to Samir Mehta, who helps oversee about $1.2 billion at J O Hambro in Singapore.
Analysts increased their average profit forecasts for 2016 by 7.4% to 26 billion baht ($741 million) after its first-quarter net income jumped 30% from a year earlier. Beer sales volumes soared 61%, lifting the brewery operation’s contributions to group revenue to 33% from 23%. The spirits business remained its cash cow.
There is “limited upside” at current levels following the stock’s recent price run-up, according to Jodie Foo, an analyst at OCBC Investment Research, who cut the stock to hold in a June report.
Thai Beverage is trading at the highest level ever relative to the broader MSCI All Country World Index. The stock is valued at 22 times its 12-month projected earnings, above its average of 16 in the past five years and almost double the multiple for the Straits Times Index, data compiled by Bloomberg show.
Speculation that Mr Charoen will further revamp his beverage businesses in Thailand and Singapore may spur more rallies in the stock, said Religare Capital Markets in a May note. The company’s founder and chairman may consolidate his drinks businesses held through Singapore-based Fraser & Neave Ltd and Oishi Group Plc into Thai Beverage, according to the report. Company officials couldn’t be reached for comment.
The company’s strategic road map toward having 50% revenue contribution from countries outside Thailand as well as from non-alcoholic beverage by 2020 may be sped up via acquisitions and restructurings, according to OCBC’s Foo in her report.
Mr Charoen controls Fraser & Neave through TCC Assets Ltd, which owns 59% of the Singapore company and Thai Beverage, which holds another 29%, according to data compiled by Bloomberg.
“We bought the shares because their cash flows are decent,” J O Hambro’s Mehta said. “The upside could come from the restructuring that the group might undertake. They could simplify the structure and that’s going to be beneficial for the minority shareholders.”