Thai Beverage

Government Benefits
The production of bio-gas
(a) exemption from payment of import duty on machinery approved by the Board;
(b) exemption from payment of income tax for certain operations for a period of eight years from
the date on which the income is first derived from such operations;
(c) a 50% reduction in the normal tax rate on the net profit derived from certain operations for a
period of five years, commencing from the expiry date in (b) above; and  
(d) exemption from income tax on dividend income derived from certain promoted operations of its subsidiaries for a period of eight years.

The production of beverage
(a) exemption from payment of import duty on machinery approved by the Board;
(b) exemption from payment of income tax for certain operations for a period of eight years from
the date on which the income is first derived from such operations; and
(c) exemption from income tax on dividend income derived from certain promoted operations of its subsidiaries for a period of eight years.
As promoted companies, the aforementioned subsidiaries must comply with certain terms and
conditions prescribed in the promotional certificates.

Significant Agreements
Glass bottle purchase and sale agreement
Thai Beverage Recycle Co., Ltd., the Company’s subsidiary, entered into the glass bottle purchase and sale agreement with Berli Jucker PCL., a related party, to purchase various types of new glass bottles in order to sell to other subsidiaries within the Group for a period of two years and eight months, effective from 1 May 2007 to 31 December 2009, under the prices and conditions stated in the contract. On 23 December 2009, the subsidiary entered into a new glass bottle purchase and sale agreement for a period of three years, effective from 1 January 2010 to 31 December 2012, under the prices and conditions stated in the contract.

License agreements
- Three subsidiaries entered into license agreements with Beer Chang Co., Ltd., Archa Beer Co.,
Ltd., and Thai Beverage Brands Co., Ltd., the Company’s subsidiaries, for rights and obligations
for the sale of drinking water, soda water, beer, draft beer and lager beer under the trade names of "CHANG", "ARCHA" and "FEDERBRAU".  The subsidiaries are committed to pay fees at a rate of 2% based on net sales at price, ex factory, excluding VAT and after deducting excise tax,
contributions to the health promotion fund and Thai Public Broadcasting Service. - Sura Bangyikhan Co., Ltd., the Company’s subsidiary, entered into license agreements with 12
subsidiaries for the rights to use trademarks for white spirits and Chiang - Chun blended spirits as stipulated in the agreement.  The trademark fee is from Baht 0.50 - 1.50 per bottle, based on the contents and size of the bottle.  With effective from January 2010, the trademark fee was adjusted to Baht 0.50 – 1.20 per bottle, based on the contents and size of the bottle.

Biogas purchase and sale agreement
Thai Beverage Energy Co., Ltd., the Company’s subsidiary, entered into biogas purchase and sale agreements with three related companies for a period of 19 years, effective from the year 2009 to 2028, to supply biogas to use as a fuel source  in spirits distillery process under the price and conditions stated in the agreements.  Subsequently in 2010, the aforementioned agreements were made with additional two related companies for a period of 18 years, effective from the year 2010 to 2028.

Revolving loan agreement
In June 2011, the Company entered into revolving joint loan agreement with subsidiaries for lending loans with joint credit limit not exceeding Baht 10,000 million, interest rate 5.00 % per annum and repayable at call. Subsequently in September 2011, the Company entered into revolving loan agreement with a subsidiary to lend loans with credit limit of Baht 15,000 million, interest rate 5.00% per annum and repayable at call. In 2011, the Company entered into revolving loan agreements with subsidiaries to borrow loans with total credit limit of Baht 55,900 million, interest rate 5.00% per annum and repayable at call.

Current Price
$0.340

Dividend Yield
2.65%.

PE Ratio
17

Net Asset Value
26.47% of share price

Summary
Both the bio-gas and beverage productions were exempted from tax for 8 years and import duties on machinery were exempted with approval by the board. This tax benefit by the government will allow the company to be in a very good position to grow. The beverage production section also sees a exemption on income tax on dividends in 8 years. This policy will benefit both the company and the shareholders in the long run because it will allow the company to maximise their payouts of dividends and thus, will be more attractive to shareholders in the long run.

Apart from the tax benefits they received from the government, the company also went to various agreements. One of the agreements was the revolving loans which allows the company to cap its borrowing interest rates to 5% per annum. This will help to better plan the company finances with fixed interest rates and also allow the company to steer in the direction of growth and maximising profits.

The second agreement was the license agreement for rights to sell its products under the brands “CHANG”, “ARCHA” and “FEDERBRAU”. The cost of the agreement was brought down to BAHT $0.5 to $1.20 per bottle after 2010 from BAHT $0.5 to $1.50 per bottle. This reduced in cost will allow Thai Beverage to reduce more of its operational costs and increase its profits.

The third agreement will impact the bio-gas sector of Thai Beverage. They entered into a 19 years contract with 3 related companies with effect from 2009 to 2028. In 2010, they forged another contract with 2 related companies for a period of 18 years. With the deals they sealed with various companies to provide bio-gas, profits are guaranteed at least till 2028.

I’ve mentioned 4 advantages of Thai Beverage to impact its profits in the future years. Firstly, the tax benefits from the government. Secondly, the revolving loan agreement with its subsidaries to cap the interest rates at 5% per annum. Thirdly, the reduction of about BAHT $0.30 per bottle costs to protect its trademark brands. Lastly, the contract to provide bio-gas to other related companies for long periods could improve their profits in the long term. Below is a brief description of how their bio-gas business is related to their core beer producing business.

Bio-Gas Business with Beer Business
Waste water resulting from ethanol distilleries are the by-product of beer production. However, 50% of the generated bio-gas can be used to run the distilleries, thus displacing the reliance on pentroleum fuel. The production of bio-gas reduces the cost of purchasing petroleum fuel and also becomes an income generating business for the company.
Reference: http://www.adi.ca/pdf/GTI_Thai.pdf dated 17 Aug 2009

About Thai Beverage (From SGX)
The Company was established on 29 October 2003.
The ThaiBev Group is the leading producer of beer and spirits in Thailand and one of the leading brewers and distillers in Southeast Asia according to Canadean Limited, a global beverage research company. Its main products are beer and spirits, which have a strong brand identity in Thailand with a reputation for quality and taste. The ThaiBev Group also produces drinking water, soda water, industrial alcohol and by-products from the brewing and distilling process. Its signature beer, Chang Beer, is the best-selling beer brand consumed in Thailand. Its well-known spirits brands include Sangsom, Mekhong and Mungkorn Thong. The ThaiBev Group has a far-reaching distribution infrastructure in Thailand and also imports its beer and spirits to 19 other countries.

As at 31 December 2005, the Group owns three state-of-art breweries with a total installed capacity of approximately 10,900.0 thousand hectoliters and 16 well-equipped distilleries with a total installed capacity of approximately 87,777.8 thousand cases. Over the years, Thai Beverage has established a far-reaching integrated distribution network with long-standing customer relationships covering approximately 400,000 points of sale in Thailand.

The ThaiBev Group has offices in Thailand, Singapore, Hong Kong, Cambodia and Malaysia.



Published on 14 Mar  2012