Broker's take: CIMB lowers ThaiBev to 'hold' on financing concerns over its bid for Sabeco

ANALYSTS at CIMB have downgraded its rating to "hold" for Thai Beverage Public Co Ltd (ThaiBev), and lowered the target price to boot.

They dropped their target price to S$1, from S$1.15 previously - still a 5.5 per cent upside on the stock.

The move followed the mainboard-listed food and drink group's winning bid for a stake in Vietnamese brewer Saigon Beer Alcohol Beverage Corp (Sabeco).

The purchase is "seemingly pricey", according to CIMB analysts Cezzane See and Lim Siew Khee.

They added: "ThaiBev may embark on prospective (mergers and acquisitions) to re-optimise its balance sheet, but near-term uncertainties may cap interest in the stock."

ThaiBev on Monday coughed up about 109.97 trillion dong (S$6.5 billion), through a partially owned Vietnamese unit, for a 53.6 per cent interest in the state-linked Sabeco.

The analysts said that ThaiBev's illustrative net gearing implies that it footed close to the entire bill for the acquisition, "which we deem puzzling, given its 49 per cent stake".

The additional borrowings skew deal valuations to a price-to-earnings ratio of between 79 and 86 times, the analysts wrote.

And they figured that the additional debt load will outweigh Sabeco's associate contributions to ThaiBev for the financial years 2018 through 2020.

They noted that ThaiBev "may embark on funding exercises to re-optimise its balance sheet post its acquisition spree this year".

Possible courses of action, they noted, including rationalising its stake in Frasers Centrepoint Ltd, a cash-call from the 51 per cent partner in the Sabeco investment vehicle, and raising its own equity funding.

"We are optimistic on the outlook for ThaiBev's incumbent spirits and beer business given the improved Thai consumer sentiment," the CIMB analysts said.

"However, uncertainties arising from this deal - impact on its balance sheet, and returns - may cap near-term interest in the stock, in our view."

As at 11.50am on Wednesday, ThaiBev had dipped by half a Singapore cent, or 0.53 per cent, to S$0.945, with more than 6.5 million shares changing hands.