Why ThaiBev must focus on becoming a "total beverage player"

Its property arm is a non-core asset for the firm.

The market had long been expecting a corporate restructuring of Thaibev’s estimated 28% stake in both F&N and FCL, according to CIMB.

"That is, divesting its FCL stake and buying a bigger F&N stake. Management shared that the restructuring is expected to be completed by FY17 (i.e. Sep 2017) but details have so far been scant," CIMB said.

While one school of thought has been how a F&N/FCL share swap will make Thaibev a much cleaner beverage company and remove its property exposure, CIMB argues that the “pure beverage play” focus is misguided.

Here's more from CIMB:

After all, with Thaibev trading above 20x forward P/E, we do not think the stock is being penalised for having a property exposure.

Instead, we think the focus should be on how the restructuring will help Thaibev morph into a truly regional total beverage player – not just a Thai spirits play.

We think a corporate restructuring of Thaibev’s c.28% stake in both F&N and FCL is the most straightforward step. i.e. consolidate F&N and divest FCL.

This is because such a move immediately lifts Thaibev’s non-alcoholic and non-Thai revenue. Further, we think FCL, being a property developer, is a non-core asset for Thaibev which could be divested. Interestingly, FCL is also not featured as a pillar in the group’s Vision 2020 logo.

Non-alcoholic beverages currently only forms 25% of group revenue, but could rise to c.50% of group revenue post F&N’s consolidation. Overseas revenue contribution (i.e. outside of Thailand) is even further away from Vision 2020’s targeted 50%, at 4% currently, although it will rise to c.18% post F&N’s consolidation.

Therefore, we think the group could look at further inorganic opportunities to increase overseas revenue contribution (with assets in Vietnam the most likely target).