F&B stocks waiting to tap economic recovery

Four years after ThaiBev, one of Southeast Asia’s major brewers, spent nearly $5 billion to acquire a majority stake in Saigon Beer Alcohol Beverage Corporation (SABECO), the stock price of the largest brewage company in Vietnam sits at less than half what it was in 2017 in part due to the ongoing pandemic.

SABECO has made efforts to improve its business performance and management since the pandemic emerged, with stocks hovering around VND150,000 ($7.15) a share last week.

In April, ThaiBev announced that it was postponing plans to sell a 20 per cent stake in its regional beer business via a Singapore listing due to the tough market conditions, aggravated by the raging pandemic.

In response to investors and shareholders in its 2021 virtual annual meeting, ThaiBev said it was hard to avoid some financial impact from the unprecedented situation. However, ThaiBev believed its portfolio is sufficiently resilient as it caters more to off-trade rather than on-trade consumption.

“Thailand and Vietnam have also commenced the rollout of domestic vaccination programmes. It is hoped that the situation in the respective countries will improve as the vaccination rate increases,” said ThaiBev.

SABECO reported consolidated revenues in the second quarter of VND7.27 trillion ($316 million), similar to the same period last year. In the first six months of 2021, its revenues reached VND13.2 trillion ($574 million), up 9 per cent over the year, with profit after tax climbing 6.4 per cent to VND 2.05 trillion ($89.1 million). However, its selling expenses have skyrocketed by 39 per cent and other expenses increased by 210 per cent, leading to a 12 per cent slump in its after-tax profit to VND1.07 trillion ($46.5 million).

It reached nearly 39 per cent of target 2021. SABECO aimed to achieve a net revenue of VND33.49 trillion ($1.46 billion) and after-tax profit of VND5.28 trillion ($229.5 million).

Truong Sy Phu, senior analyst at Bao Viet Securities Company, said, “According to our observations, after only one year of replacing shareholders, SABECO’s profit margin has improved a lot thanks to production management, product distribution, sales organisation and standardisation of cost production and business costs. SABECO today has become much more professional and efficient than before, which is a success for Thai Beverage.”

Since late 2019, ThaiBev has repeatedly denied rumours that it is seeking a buyer for its Vietnamese business. However, the most difficult problem of Thai Beverage lies in revenues: how to increase the presence of SABECO in the on-trade channel (the battle for brand promotion, promotion, and on-trade sales) and increase market share in the high-end segment.

“This is quite an expensive war. This also explains the fact that SABECO and other food and beverage (F&B) companies like Heineken are both spending heavily on selling expenses to gain market share,” commented Phu. “However, in the medium and long term, we expect the SABECO’s brand, with the help of Thai Beverage, to gradually become more successful and regain market share from major cities in general and in the mass premium segment.”

SABECO has been standing by Vietnam in the fight against COVID-19 through activities including its community care programme, supporting healthcare frontliners because it believes the quicker the state stabilises economic recovery, the sooner enterprises will return to their development momentum.

Brokers pointed out that stocks in the F&B industry have a quite high dividend payout ratio, very suitable for medium and long-term investment. The pandemic has made it difficult for many businesses to do business, but this has been reflected in prices.

From Wall Street to Sydney, stocks in the F&B sector worldwide continue to dip as the globe attempts to get back to some sort of normality.

Vietnam’s beer industry in particular could take up to two years to recover to pre-pandemic levels. By 2024, spending on alcoholic beverages could reach $13 billion with a compound annual growth rate for 2020-2024 of 9.5 per cent, according to Phuc Hung Securities.