TRIS Rating Affirms Company Rating of “ThaiBev” at “AA-/Stable”

TRIS Rating Co., Ltd. has affirmed the company rating of Thai Beverage PLC (ThaiBev) at “AA-” with “stable” outlook. The rating reflects the strong position of the ThaiBev Group in the Thai alcoholic beverage industry, an experienced and capable management team, economies of scale as the largest brewer and distiller, an extensive distribution network, a diversified portfolio of products, and strong and stable cash flow. These strengths are partially offset by an intensely competitive environment and regulatory risk that could lower the growth of alcoholic beverage consumption.

The “stable” outlook is based on the expectation that ThaiBev will maintain its strong position in the beer and spirits markets. Business expansion to non-alcoholic beverages and food will yield opportunities and reduce the dependency on alcoholic business. TRIS Rating expects ThaiBev to maintain its current financial profile as long as the company has no huge debt-financed investment.

TRIS Rating reported that ThaiBev is a holding company that controls 89 subsidiaries and associated companies that conduct various business operations in the alcoholic beverages, non-alcoholic beverages, food, and other related businesses. For alcoholic beverages, ThaiBev produces and distributes a wide variety of products 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, Blend 285 and Ruang Khao for spirits and Chang for beer, are well-known in the market. The majority of ThaiBev’s brands target the economy segment, which is the largest segment of the alcoholic beverage market. In 2007, ThaiBev controlled around 46.7% of the beer market and around 70% of the total spirits market. Although ThaiBev has long dominated the Thai alcoholic beverage market, its beer sales have declined as a result of fierce competition by the major competitor, the Boon Rawd Brewery Group. In 2008, ThaiBev broadened its business to non-alcoholic beverages and food; both of which now making up an opportunity of revenue diversification. ThaiBev’s portfolio of non-alcoholic beverages and food comprises drinking water, drinking soda, green tea, black tea, fruit juice, functional drinks, energy drinks, ready-to-drink coffee, Japanese restaurant, and bakery.

With annual production capacities of 1,550 million liters of beer and 819 million liters of spirits, ThaiBev has a certain degree of purchasing power for raw materials. Its 18 local distillers located throughout the country give the company a logistical advantage. Moreover, ThaiBev’s extensive distribution network and efficient sales agents reinforce its strong business profile. Currently, the company’s distribution network consists of 930 agents, 680 direct sub agents, more than 900 direct sales persons, and 4,000 transportation vehicles, to serve more than 400,000 retail outlets nationwide. Because of the diverse product portfolio, the company can fully benefit from the economies of scale and maximize the synergy of its extensive distribution network and existing resources.

ThaiBev’s high operating margin reflects its operating efficiency. The company has generated around Bt15,000 million in funds from operations (FFO) per annum for the last three years. The leverage ratio has improved significantly, with the debt to capitalization falling from 58.9% in 2005 to 28.0% as of September 2008. At the same time, cash flow protection, as measured by the FFO to total debts ratio, improved from 33% in 2005 to 44.5% (non-annualized) for the first nine months of 2008.

TRIS Rating said that the Thai beer market still has room to grow. According to the Bank of Thailand (BOT), the per capita beer consumption rate of 32.98 liters per person per year is considered 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. Government regulation can greatly influence the public demand for alcoholic beverages. The Thai government’s 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 constraints may cause the Thai alcoholic beverage market to grow at a slower rate. -- End

Company Rating: Affirmed at AA- Rating Outlook: Stable Copyright 2009, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.

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