ThaiBev stock price is up 17% over the past 1 month

UBS

Potential MSCI inclusion?
Despite being a fairly large and liquid stock (MCap US$14.5bn, 6M avg turnover US$9.2m), ThaiBev is ineligible for MSCI Index inclusion given its incorporation in Thailand and listing in Singapore. However, MSCI has recently launched a consultation process on potential enhancements to its methodology and one of the proposed changes is to start considering companies not listed in their "country of classification" for index inclusion. If implemented, we understand it could result in ThaiBev's inclusion into MSCI Thailand as early as Feb-15 and serve as a catalyst for further potential upside.

Restructuring scenarios and financial impact – a refresher
On restructuring of ThaiBev's 28.6% stake in FCL and FNN, we are still of the view that a share swap between ThaiBev and TCC assets is the most likely scenario which would result in streamlining of interests. While the timing for this remains uncertain, any progress here could remove the overhang and lead to further rerating. In this report, we have refreshed our restructuring scenarios and impact based on current prices. In the event ThaiBev sells its 28.6% stake in FCL for an equal value of FNN shares, ThaiBev would then own 60.7% of F&N. Impact on ThaiBev's earnings could be -7% but rerating from becoming a focused beverage company could offset this earnings decline.

Raise long term spirits margin assumptions; raise FY15-16E earnings by 3%
We raise our FY15-16E revenue estimates by 1% and earnings estimates by 3% on higher spirits business OPMs. Given the company policy of
100% pass through of all excise price hikes and potentially raising pure product price around such excise hikes, we think that current 24% OPMs for the spirit business are sustainable. We also raise our longer term OPM assumptions for this business from 21.7% to 23.5%. ThaiBev's earnings estimates and valuation is quite sensitive to spirits business OPMs.

Valuation: Raise SOTP based PT from S$0.71 to S$0.84; maintain Buy We value spirits and beer business using DCF and listed entities at market price. We use a WACC of 7.1% and 3% terminal growth. We also roll forward our DCF valuation to 2015 assumptions.