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COMMENTARY

Asia's thirst for beer adds fizz to mega-brewer's plans for IPO

IN 1934, the United States ended 13 years of prohibition. Prohibition was a dark era when alcohol was banned, but illicit booze thrived. The year also marked a seismic shift in the beer industry. The launch of canned beer was planned in America.

Beer cans were then an unpalatable novelty. Some beer guzzlers felt that the brew tasted inferior when drunk from a can. However, by 1955, over half the beer sold in America was through cans. Beer consumption doubled in a generation with the onset of cans.

Singapore may be at the heart of a transformation like the US in 1934. Last week, the world's largest brewer Anheuser-Busch InBev announced that it was considering listing its Asian operations. It is possible that Singapore may be considered, in my view. AB InBev's brands include Budweiser and Stella Artois.

AB InBev's Asian operations could be valued at US$70 billion, according to reports. This could make it the largest company on the Singapore Exchange. It is conceivable that the IPO could raise US$7 billion, which could help cut its US$100 billion of net debt.

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Asia is the most vibrant part of AB InBev's - and the world's - beer market. Beer consumption is growing at over 6 per cent per annum in China, India and Vietnam. About a sixth of AB InBev's revenue is from this region.

Asia's bubbly beer volumes are in sharp contrast to the stagnation in the developed markets. In Europe and US, growth has evaporated.

The United States and Europe drink nearly half the world's beer, but less of the liquid is being drunk. Germans, for instance, drink 107 litres of beer per annum per person, which is three times the level in China. However, per capita beer consumption has shrunk by 4 per cent since 2010. In fact, beer consumption has dropped by a third in Germany since the 1970s.

Beer is facing demographic pressure in Europe. There are fewer youth becoming lager louts at football matches. Europe is ageing fast.

In America, craft brewers have outpaced traditional brewers. Craft brewers are autonomous brewers who often sell on their own premises, like Brewerkz in Clarke Quay. In 2018, craft beer grew 5 per cent in the US, while traditional brewing was flat.

The fizz in the world beer market is in the emerging markets of Asia. Beer consumption in Indonesia is just 1 litre per capita, which is about 1 per cent of the level in Europe. Home brew, Indonesia's answer to craft beer, is unrecorded. Indonesia's home brew market could be higher than the official beer market. Home brew is cheap and sometimes made with contaminated water.

Beer is an aspirational item. Consumers may trade up from home brew, in the same way that colour TVs swiftly replaced black and white sets.

There is more to Asia's beer boom than the eclipse of home brewing. Canned beer is a simple item that could drive profound changes. In Asia, most beer is still sold in glass bottles. About three-fourths of Thailand's beer is in bottled form.

Bottled beer requires a deposit from the customers, as the bottles are returnable. The bottles are owned by the brewer and cost more than the liquid inside.

Bottles are a dampener on sales. They are breakable and hard to transport. Apart from the operational hazards, they are a burden on cash flow. They require a deposit, which means that the sale is not completed until the bottles return.

By the sharpest of contrasts, cans are easily stackable and moveable. They rarely break. The brewers record the sales instantly. Hence, brewers who sell canned beer have better cash collection than those who sell it in bottles.

Cans are on a cusp of a boom in the region. Brewers ranging from San Miguel to Asahi have commissioned canning plants. Canned capacity could double in five years.

A listing of AB InBev's Asia business in Singapore may be just the fizz that the moribund SGX requires. SGX is home to Asean's largest listed liquor company - Thai Beverage. Thai Bev has risen two-fold since its listing in 2006. If AB InBev lists on the SGX, investors may raise some beer cans.

  • The writer is the head of Consumer Sector Equity Research at Exotix Capital.