Oct 17th, 2013
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WSB – Struggles to achieve optimistic growth and maintain market share
(Diem My Tran – Ext: 1311)
Saigon Beer Western JSC (WSB – Upcom) which is a subsidiary of Saigon Alcohol Beer and Beverages Corporation (Sabeco), located in Can Tho city. Recently, investors have paid more attentions on the divestment from Sabeco and Habeco (two leading brewery companies in Vietnam). Below is a brief update and some assessments for 2016.
WSB is in the production stage of Sabeco’s value chain, in which canned and bottled beers are its main products. The company has two plants in Can Tho and Soc Trang, with total designed capacity of 100 million liters/year (operating capacity at 100-115%).
Because WSB’s input and output depend heavily on Sabeco, its earnings results remain relatively stable. In 2011-2015, revenue and NPAT recorded an average growth of 25% and 3% respectively. In recent years, its growth rates mainly came from capacity expansion.
Based on our analysis, both WSB’s plants are operating with the capacity at about 58ml liters/year, approaching the maximum capacity of 60ml liters/ year. In the upcoming years, we expect that WSB could expand its capacity because it still has large bare land (8 ha) at Soc Trang 2 plant and it would receive tax incentive in case of capacity expansion. However, the expansion of WSB’s two plants is limited due to high dependence on parent company’s policies.
With strong relationship with the parent company, WSB is ensured about raw material for production as well as sales volume. In contrast, being a link within the production of Sabeco, the Company only benefits from the allocated profit for production, not from the volatility of materials or sales price. Main input materials for beer making process include: rice, hop flower and malt. In which, the Company only has the autonomous input of rice (accounting for 3-6% of cost of goods sold) while the remaining two (hop and malt) are provided by Sabeco based on fixed contracts for each year.
Rising competition in the Western beer market is an important concern for WSB. The company currently holds 60% of this market. However, the expansion of other competitors’ sales activities namely Su Tu Trang (MASAN) and Tiger (VBL) partially capture the market share of WSB. In addition, this also limits the ability to expand WSB’s capacity in the coming years.
Under the direction of Prime Minister, Sabeco is projected to be listed on HOSE at the end of 2016. As being the parent of WSB, we expect that the transparency in cost structure between parent company and WSB is expected to improve after the event which would likely benefit for WSB’s performance in the future. In 2016, we estimate that WSB’s revenue and NPAT would reach VND 966 bil (+17% yoy) and VND 97 bil (+2% yoy). 2016 EPS is projected to be VND 6,690, equivalent to P/E forward of 7,46x, which is relatively attractive compared to the Asian industry average of 11x (after discounting the liquidity aspect).
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