11 May 2016 Asia Pacific/Thailand Equity Research Beer & Alcoholic Beverages

Thai Beverage

(TBEV.SI / THBEV SP) Rating OUTPERFORM* Price (10 May 16, S$) 0.74 INITIATION

Target price (S$) 0.85¹ Upside/downside (%) 14.1 Mkt cap (S$ mn) 18,707 (US$13,647 mn) No more Chang-over Enterprise value (Bt mn) 517,611 Number of shares (mn) 25,110.02 ■ Sustainable gains in beer market share. Sales volumes of Chang saw a Free float (%) 19.4 17% YoY jump in CY15 after the launch of the new Chang Classic in August 52-week price range 0.78-0.66 ADTO - 6M (US$ mn) 5.4 2015. Some questions remain over its sustainability, but we believe Thaibev

*Stock ratings are relative to the coverage universe in each is in a strong position to maintain its market share gains as the recent surge analyst's or each team's respective sector. ¹Target price is for 12 months. is not just due to a change in packaging but due to: (1) a more effective marketing strategy, (2) streamlining of sales teams and management, and Research Analysts (3) leveraging on the expertise of ex-APB management. Nicholas Teh 65 6212 3026 ■ A clear leader in Thai spirits. Thaibev dominates the Thai spirits market [email protected] with a market share of ~90%. Moving forward, we expect the spirits business to continue to grow at a stable 1% p.a. given the current weakness in consumption in Thailand. The spirits business will continue to account for majority of the earnings, but that majority will gradually be eroded by beer. ■ Narrowing losses for non-alcohol. Thaibev is still in the investment stage of growing its non-alcoholic business, particularly in the CSD segment. We expect SG&A for non-alcohol to remain elevated but the level of losses in the division to start to narrow. Key risk in the near term is a hike in excise taxes which is expected in 2016—historically, Thaibev has been able to pass on the higher cost and is expected to do the same this time around. ■ Initiate with OUTPERFORM and a TP of S$0.85 based on our sum-of-the- parts valuations which implies an upside of 14%. Thaibev currently trades at a CY16 P/E of 19.3x, which is at a 12-17% discount to Thai consumer staples and global alcohol peers. A sustainable growth of beer will give investors more confidence over extracting further synergies within the business and growing regionally.

Share price performance Financial and valuation metrics

Year 12/15A 9/16E 9/17E 9/18E Price (LHS) Rebased Rel (RHS) Revenue (Bt mn) 172,049.0 184,791.2 192,754.6 199,121.7 2 160 EBITDA (Bt mn) 27,548.7 28,580.8 30,577.0 32,522.0 1.5 140 EBIT (Bt mn) 23,190.7 24,202.4 26,250.3 28,241.2 1 120 Net profit (Bt mn) 22,615.7 24,447.9 26,373.3 28,277.1 0.5 100 EPS (CS adj.) (Bt) 0.90 0.97 1.05 1.13 0 80 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Change from previous EPS (%) n.a. Consensus EPS (Bt) n.a. 0.98 1.03 1.11 The price relative chart measures performance against the EPS growth (%) 4.3 8.1 7.9 7.2 FTSE STRAITS TIMES IDX which closed at 2730.8 on P/E (x) 21.2 19.7 18.2 17.0 06/05/16 On 06/05/16 the spot exchange rate was S$1.36/US$1 Dividend yield (%) 3.2 3.5 3.8 4.1 EV/EBITDA (x) 18.9 18.1 16.8 15.6 Performance over 1M 3M 12M P/B (x) 4.2 3.9 3.7 3.4 Absolute (%) 3.5 10.4 1.4 — ROE (%) 20.8 20.4 20.7 20.8

Relative (%) 5.9 4.2 22.4 —

Net debt/equity (%) 34.4 29.2 23.7 17.7 Source: Company data, Thomson Reuters, Credit Suisse estimates

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access

11 May 2016 Focus charts and table

Figure 1: Expect growth in Chang volumes to continue Figure 2: Chang—lowest margins compared to peers

(market share) Market share EBITDA margin (EBITDA margin) (mn liters) Volume Market share 1500 65.0% 50.0% 45.0%

45.0% 40.0% 1300 55.0% 40.0% 35.0% 1100 35.0% 45.0% 30.0% 30.0% 900 25.0% 35.0% 25.0% 20.0% 700 20.0% 15.0% 25.0% 15.0% 500 10.0% 10.0% 15.0% 300 5.0% 5.0% 0.0% 0.0% 5.0%

100 Kirin

Asahi

Chang

ABI US ABI

SAB US SAB

HEIN WE HEIN CARL EE CARL

CARL WE CARL

HEIN CEE HEIN

CARL Asia CARL

CARL Msia CARL

MC Canada MC

ABI Canada ABI

SAB Europe SAB Mexico Hein

SAB Australia SAB HEIN Asia Pac Asia HEIN

-100 -5.0% Americas HEIN

2010 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015

2018E 2017E 2016E Source: Company data, Credit Suisse estimates Note: As at 2015. Source: Company data

Figure 3: More streamlined organisational structure Figure 4: EBITDA—spirits forms a stable base while beer drives growth (Bt mn) Spirits Beer Non-alcoholic beverages Food 38,000

33,000

28,000

23,000

18,000

13,000

8,000

3,000

(2,000)

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

FY18E FY17E FY16E Source: Company data, Credit Suisse research Source: Company data

Figure 5: Non-alcohol losses to narrow moving forward Figure 6: SOTP valuation summary Value to (Bt bn) Component Units Value Multiple 1,000 THBEV THBEV spirits DCF Bt mn 444,759 500 THBEV beer DCF Bt mn 59,258 0 Non-alcohol & food DCF Bt mn 20,913 FY16 (500) F&N (Equity value) Bt mn 6,091 8 22,286 EBITDA (1,000) FCL (Equity value) P/B Bt mn 47,089 0.8 38,424

(1,500) Net debt (FY15 end) Bt mn -44,419 + minorities (2,000)

(2,500) NAV Bt mn 541,222 Number of share Bt mn 25,110 (3,000) 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Target price S$ 0.85

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates

Thai Beverage (TBEV.SI / THBEV SP) 2 11 May 2016 No more Chang-over Sustainable market share gains in beer Sales volumes of Chang saw a 17% YoY jump in CY15 pushing market share up to 38% from 30% previously (Figure 13). The volume growth came largely in 4Q when beer volumes rose 50% YoY following the launch of the new Chang Classic in August 2015— this was the strongest volume growth Thaibev had seen since 2007. Some questions, We believe market share however, remain over sustainability given that the recent surge was caused dimply due to gains are sustainable a change in packaging. However, we believe Thaibev is in a strong position to maintain its market share as the recent surge is not just due to a change in packaging but: (1) due to a change in the company's focus on branding which has resulted in more effective marketing, (2) due to New streamlined structure, streamlining of sales teams (splitting beer and spirits) and management, and (3) due to more effective marketing, leveraging on the expertise of ex-F&N (and APB) management. We believe synergies with and leveraging off ex-APB F&N are starting to materialise and Chang is the lowest hanging fruit. We expect beer expertise revenues to show an FY15-18E CAGR of 12% with EBIT growing at 51%. A clear leader in Thai spirits Thaibev dominates the Thai spirits market with its brands making up eight out of the top-ten selling spirits in the country and commanding a market share of ~90%—the share is 95% in A stable 90% market share white and 86% in brown spirits markets. The white spirits are most widely drunk in the more in spirits market rural areas and are significantly cheaper compared to the brown spirits segment which has a more premium positioning. Spirits consumption has shown a 2006-15 CAGR of 1.9% and has created a stable earnings base for Thaibev as the segment currently accounts for 94% of its EBITDA. Moving forward, we expect the spirits business to continue to grow at a stable 1% p.a. given the current weakness in consumption in Thailand. The spirits business will continue to account for a majority of its earnings, but that majority is expected to decline to 79% of EBITDA in FY18 due largely to the strong growth in beer. Narrowing losses for non-alcohol Thaibev is still in the investment stage of growing its non-alcoholic business, and particularly in the Carbonated Soft Drinks (CSD) segment, where it is still trying to build up Non-alcohol business still in the brand presence and market share of Est and 100 PLUS (in Thailand). We expect its investment phase but SG&A to remain elevated moving forward but for the level of losses in the non-alcoholic expect losses to narrow division to narrow. The market is expecting Thaibev to raise its stake in F&N in 2016 via a share swap of Thaibev's 28.5% stake in FCL for TCC group's 59.4% stake in F&N, which would make it a purer regional beverage entity. Simply based on the current market caps, Thaibev will F&N swap will strengthen need an additional S$269 mn to consolidate the stakes in F&N. However, post the balance sheet and leave exercise, Thaibev's balance sheet would be strengthened by F&N's net cash position, room for acquisitions leaving ~Bt75 bn for capex given Thaibev's target gearing is 2.5x net debt to EBITDA. Initiating with OUTPERFORM We initiate on Thaibev with an OUTPERFORM rating and a target price of S$0.85 based on sum-of-the-parts valuation, implying an upside of 14%. We value the spirits, beer, and Initiating with an non-alcohol/food businesses on DCF. For spirits and beer, the valuations imply CY16 -17 OUTPERFORM EV/EBITDA multiples of 16x and 12x-18x respectively, in line with the range for peers. Our valuations for the non-alcohol/food and associates are similar to current market values. Thaibev currently trades at a CY16 P/E of 19.3x, a 12-17% discount to Thai consumer staples and global alcohol peers. A sustainable turnaround of beer will give investors more confidence over reaching vision 2020 (50% of revenues derived outside Thailand and from non-alcohol) and extracting further improvements/synergies within the business.

Thai Beverage (TBEV.SI / THBEV SP) 3 11 May 2016

Thai Beverage TBEV.SI / THBEV SP Price (10 May 16): S$0.74, Rating: OUTPERFORM, Target Price: S$0.85, Analyst: Nicholas Teh Target price scenario Key earnings drivers 12/15A 9/16E 9/17E 9/18E Scenario TP %Up/Dwn Assumptions Vol growth - spirits (%) 1.20 1.00 1.00 2.00 Upside 0.90 20.81 PE similar to consumer staples peer 23x Volume growth - beer (%) 17.5 20.3 9.1 4.7 Central case 0.85 14.09 Realisation/litre-spirits (Bt) 187.1 187.1 187.3 187.3 Downside 0.60 (19.46) Lower end of the range of consumer staples peers' 15x Realisation/litre- beer (Bt) 64.2 64.2 64.9 64.9

Income statement (Bt mn) 12/15A 9/16E 9/17E 9/18E PerSource: share data 12/15A 9/16E 9/17E 9/18E Sales revenue 172,049 184,791 192,755 199,122 CompanyShares (wtd avg.) data (mn) 25,110 25,110 25,110 25,110 Cost of goods sold 121,830 131,620 136,874 141,162 EPS (Credit Suisse) (Bt) 0.90 0.97 1.05 1.13 SG&A 27,028 28,969 29,630 29,719 DPS (Bt) 0.61 0.67 0.73 0.79 Other operating exp./(inc.) (4,358) (4,378) (4,327) (4,281) BVPS (Bt) 4.62 4.92 5.24 5.58 EBITDA 27,549 28,581 30,577 32,522 Operating CFPS (Bt) 0.86 0.84 0.92 1.02 Depreciation & amortisation 4,358 4,378 4,327 4,281 Key ratios and valuation 12/15A 9/16E 9/17E 9/18E EBIT 23,191 24,202 26,250 28,241 Growth(%) Net interest expense/(inc.) 1,344 1,049 939 813 Sales revenue 6.18 7.41 4.31 3.30 Non-operating inc./(exp.) 1,351 1,182 1,206 1,230 EBIT (0.80) 4.36 8.46 7.58 Associates/JV 7,774 4,979 5,159 5,350 Net profit 4.25 8.10 7.88 7.22 Recurring PBT 30,972 29,315 31,677 34,008 EPS 4.25 8.10 7.88 7.22 Exceptionals/extraordinaries — — — — Margins (%) Taxes 4,508 4,867 5,304 5,732 EBITDA 16.0 15.5 15.9 16.3 Profit after tax 26,463 24,448 26,373 28,277 EBIT 13.5 13.1 13.6 14.2 Other after tax income — — — — Pre-tax profit 18.0 15.9 16.4 17.1 Minority interests (0.32) (0.30) (0.33) (0.35) Net profit 13.1 13.2 13.7 14.2 Preferred dividends — — — — Valuation metrics (x) Reported net profit 26,464 24,448 26,373 28,277 P/E 21.2 19.7 18.2 17.0 Analyst adjustments (3,848) — — — P/B 4.15 3.89 3.65 3.43 Net profit (Credit Suisse) 22,616 24,448 26,373 28,277 Dividend yield (%) 3.19 3.50 3.81 4.13 Cash flow (Bt mn) 12/15A 9/16E 9/17E 9/18E P/CF 22.1 22.8 20.8 18.8 EBIT 23,191 24,202 26,250 28,241 EV/sales 3.03 2.80 2.66 2.54 Net interest — — — — EV/EBITDA 18.9 18.1 16.8 15.6 Tax paid (5,003) (4,867) (5,304) (5,732) EV/EBIT 22.5 21.4 19.5 17.9 Working capital (1,236) (1,471) (987) 41 ROE analysis (%) Other cash & non-cash items 4,756 3,196 3,121 3,051 ROE 20.8 20.4 20.7 20.8 Operating cash flow 21,709 21,060 23,081 25,601 ROIC 12.7 12.4 13.2 14.0 Capex (4,219) (4,869) (4,022) (4,018) Asset turnover (x) 0.95 0.99 1.00 1.00 Free cash flow to the firm 17,490 16,192 19,059 21,583 Interest burden (x) 1.34 1.21 1.21 1.20 Disposals of fixed assets — — — — Tax burden (x) 0.85 0.83 0.83 0.83 Acquisitions — — — — Financial leverage (x) 1.53 1.47 1.42 1.39 Divestments — — — — Credit ratios Associate investments — — — — Net debt/equity (%) 34.4 29.2 23.7 17.7 Other investment/(outflows) 1,863 1,483 1,109 1,130 Net debt/EBITDA (x) 1.49 1.30 1.05 0.78 Investing cash flow (2,356) (3,386) (2,913) (2,888) Interest cover (x) 17.3 23.1 28.0 34.7 Equity raised — — — — Dividends paid (15,317) (16,824) (18,330) (19,837) Source: Company data, Credit Suisse estimates. Net borrowings (3,728) (3,238) (3,663) (3,330) Other financing cash flow (1,439) (1,302) (1,208) (1,110) 12MF P/E multiple Financing cash flow (20,484) (21,364) (23,201) (24,277) 25 Total cash flow (1,131) (3,689) (3,033) (1,564) Adjustments — — — — 20 Net change in cash (1,131) (3,689) (3,033) (1,564) Balance sheet (Bt mn) 12/15A 9/16E 9/17E 9/18E 15 Cash & cash equivalents 3,490 4,182 5,625 8,886 Current receivables 5,294 4,483 4,667 4,815 10 Inventories 35,204 38,033 39,551 40,790 5 Other current assets 4,140 4,446 4,638 4,791 Current assets 48,128 51,144 54,481 59,282 0 Property, plant & equip. 46,921 47,412 47,107 46,844 2011 2012 2013 2014 2015 2016 Investments 77,265 78,702 80,679 82,558 Intangibles 7,228 7,228 7,228 7,228 Other non-current assets 2,475 2,567 2,662 2,763 12MF P/B multiple Total assets 182,017 187,053 192,158 198,674 Accounts payable 9,854 10,412 10,944 11,631 6 Short-term debt 18,645 16,539 14,854 13,506 5 Current provisions 2,300 2,300 2,300 2,300 Other current liabilities 2,291 2,278 2,376 3,000 4 Current liabilities 33,090 31,529 30,473 30,437 3 Long-term debt 25,883 24,752 22,774 20,792 Non-current provisions 3,637 3,733 3,828 3,924 2 Other non-current liab. 140.6 150.0 150.0 150.0 1 Total liabilities 62,751 60,163 57,226 55,303 Shareholders' equity 115,885 123,509 131,552 139,993 0 Minority interests 3,380 3,380 3,380 3,379 2011 2012 2013 2014 2015 2016 Total liabilities & equity 182,017 187,053 192,158 198,675

Source: IBES

Thai Beverage (TBEV.SI / THBEV SP) 4 11 May 2016 Sustainable market share gains in beer Sales volumes for Chang saw a 17% YoY jump in 2015 pushing its market share up to 38% from 30% previously (Figure 13). The volume growth came largely in 4Q when beer Volume growth in 2015 volumes rose 50% YoY following the launch of the new Chang Classic in August 2015, the driven by launch of new best sales volumes achieved since 2007. Chang had once been the dominant beer in Chang Classic in 4Q Thailand but lost that position very quickly. As such, there are still some questions over the sustainability of market share gains and the company's capability to deal with a reaction from Singha & Leo. However, we believe Thaibev is in a strong position to maintain its market share and potentially look for more gains as the successful launch of Chang Classic was not only Market share gains are driven by a change in branding/packaging but also a change in the focus of sales, down to more than just a marketing/branding, and management. change in packaging

Figure 7: Strongest beer volumes in 4Q CY15 since 2007

(mn liters) Volume YoY growth (YoY growth) 300.0 80.0% Launch of new Chang Classic 250.0 60.0%

40.0% 200.0 20.0% 150.0 0.0% 100.0 -20.0%

50.0 -40.0%

0.0 -60.0%

1Q06 4Q07 2Q12 1Q14 3Q06 4Q06 1Q07 2Q07 3Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 2Q06 Source: Company data, Credit Suisse estimates Not just a change in bottle colour…

Figure 8: Consolidating Chang beers into one product with new packaging and lower alcohol content

Source: Company

Thai Beverage (TBEV.SI / THBEV SP) 5 11 May 2016

In August 2015, Thaibev consolidated all its beer brands, Chang Light, Chang Export, Chang Draught, under the Chang Classic brand. The most visible change was in the New Chang Classic—green packaging which switched from amber bottles to more modern looking green bottles to bottle, lower alcohol content, convey a premium positioning and targeting a younger age group (25-35 years). lower bitterness The blend of Chang Classic also changed as it now offers a lighter 5.5% alcohol by volume (abv) and a reduced bitterness with an IBU (International Bitterness Unit) of just 13, improving the drinkability of the beer. The previous Chang Classic had a much heavier 6.4% abv and an IBU of 30. This has allowed for Chang's pricing to move closer to its competing brand, Leo, whose price is only Bt1 higher for big bottles and is on par for smaller bottles. More effective marketing—hosting events Chang has also moved to hosting events with the launch of Chang Carnival, Chang Football Sevens, and Chang Music Connection. We believe the events have been a more Marketing shift toward effective way of marketing and helping to create and build brand equity and consumer hosting event creates more affiliation with the brand. affiliation with the brand In the past, Chang used to sponsor events rather than host them, which promoted consumption during the event but created less visibility resulting in limited impact on consumption, post the events.

Figure 9: Chang carnival, music connection, and football sevens events

Source: Chang Beverage

Thai Beverage (TBEV.SI / THBEV SP) 6 11 May 2016

A more streamlined structure…

Figure 10: More streamlined management structure

Source: Company data, Credit Suisse research What has been less visible to consumers is the more streamlined management structure. Since Vision 2020 was announced (2014), Thaibev has streamlined its core businesses Management structure more into beer, spirits, and non-alcoholic beverage while creating a separate management and streamlined sales teams for each of them. Previously the group's structure was segmented into the production of beer, spirits, non- alcoholic beverages, and international business while a separate group would be in charge Separate sales teams for of sales as a whole. As a result, the sales teams previously could rely on hitting their sales spirits and beer targets by selling their strongest product, spirits, and not aggressively pushing beer sales. However, with separate sales teams, the beer product group will now be purely focused on driving beer sales, similarly, spirits and non-alcohol teams will be focused on driving sales of their own divisions. …and leveraging on F&N expertise Thaibev's beer business now leverages on the expertise of F&N, which has largely built its track record in the alcoholic beverage sector via a JV with Heineken in Asia Pacific Leveraging on F&N Breweries (APB) that started in 1931. APB was sold to Heineken in 2012; however, F&N expertise of running Asia retained some of the management team which Thaibev is now leveraging to turn around Pacific Breweries the beer business. Edmond Neo joined Thaibev as the CEO of Chang International in August 2014 and is in charge of the beer business. He had previously spent 20 years in APB with experience of working in Singapore, New Zealand, Cambodia, and Sri Lanka. His previous role with APB was mainly in the branding/marketing front where he held the position of senior marketing manager. He also held the position of senior brand manager at APB and DB Breweries while his last position was as head of group marketing at F&N. Although short, his track record at Chang has started off strongly with the rebranding/ consolidation of Chang Beer helping drive significant volume and market share gains. We understand that other employees were also brought over from Heineken and APB to create a better mix of new and experienced staff. Given the strong growth in sales volumes, capacity utilisation is now up to 65% (from 40% previously).

Thai Beverage (TBEV.SI / THBEV SP) 7 11 May 2016

Figure 11: Edmond Neo—extensive marketing/branding background with APB Date Position 2014 – Present CEO, Chang International 2013 – 2014 Head Group Marketing, F&N 2007 – 2013 Director Group Commerce, APB 2005 – 2007 CEO, APB Lanka 2002 – 2005 Commercial Manager, Cambodian Brewery 2000 – 2002 Asst GM Group Commerce, APB 2000 – 2000 Regional Marketing Manager, Phillips Spore Mobile phone division 1997 – 2000 Senior Marketing Manager, APB Group Commerce 1996 – 1997 Senior Brand Manager, DB Breweries 1991 – 1996 Senior Brand Manager, APB 1989 – 1991 Corporate Bank Officer, OUB 1989 – 1989 Auditor, PWC Source: Linked In Expect market share gains to be sustainable Chang was once the number-one beer player in Thailand but subsequently saw a rapid decline in its market share. We believe that the market share gains this time around are We expect market share more sustainable as they are not only driven by a change in product but are backed by a gains to be sustainable more focused management structure with the support of veterans in the regional beer industry who have had the experience in defending a leadership position.

Figure 12: Expect growth in Thaibev beer volumes to be sustainable (mn liters) 1,200

961 1,000 922 881 849 807 800 671 638 641 594 618 613 600 567

400

200

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Source: Company data, Credit Suisse estimates

Figure 13: Chang beer market share trend

70.0% 64% 60% 59% 60.0%

49% 50.0% 47% 44% 45% 42% 40.0% 38% 38% 34% 32% 32% 31% 30% 30% 30.0%

20.0%

10.0%

0.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E

Source: Company data, Nielsen, Euromonitor, Credit Suisse estimates

Thai Beverage (TBEV.SI / THBEV SP) 8 11 May 2016

How's the competition reacting? The significant market share gains made by Chang have taken Boon Rawd Brewery (Singha & Leo) by surprise and the initial reaction seems to be to offer retailers/agents Boon Rawd Brewery has so bigger rebates. Lowering the pricing of Leo on wholesale, however, has not filtered far lowered pricing of Leo on through to retail prices, and Leo has yet to undercut the pricing of Chang. For now, the wholesale market beers are relatively evenly priced. In a recent interview, Piti Bhirom Bhakdi, the MD of Boon Rawd Trading, indicated plans to use cash flow from its beer business to diversify the group into property and focus on maintaining profit margins rather than market share. As such, this would imply that there would not be aggressive price cutting pressure from Singha & Leo. Chang beer is the low hanging fruit

Figure 14: Chang's margins are significantly lower than industry peers with similar market share 60%

ABI LatAm South ABI Brazil R² = 0.4286 50% SAB Colombia ABI Mexico SAB LatAm

ABI US 40% SAB Australia SAB Tanzania ABI Canada

Castel HEIN Asia Pac HEIN Africa SAB SA

% 30% CARL EE ABI Korea - Efes Turkey HEIN CEE MC Canada SAB Africa Guinness Nigeria SAB Europe25.0%Hein Mexico HEIN Americas HEIN WE CARL Asia SAB US 20% GAB ABI China CARL WE Kirin CARL Msia

EBITDA margin EBITDA MC Europe SAB China Yanjing Efes EBI CCU Argentina 10% Sapporo Tsingtao

Thaibev 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Market share - %

Source: Company data, Credit Suisse estimates Chang Beer has been a significant underperformer compared to industry peers. Despite having a market share of over 30%, EBITDA margins of 2.9% are significantly below Chang Beer has been the industry peers of 20-23% with similar market share. We believe that Chang will continue to low hanging fruit given gain market share while margins will sequentially improve to 10.0% in 2018. Back in 2006- market share and poor 08 when Chang's market share was 38-49%, its EBITDA margins were 7.6-14.5%; as margins such, there is potential for margins to improve further. Scope for profitability to continue improving Chang Beer has started turning profitable on an operating profit level mainly as its SG&A as a proportion of revenue has started to decline given the more impactful marketing efforts. Although absolute SG&A expenses surged in 4Q, with the launching of Chang Classic, its percentage of revenue and SG&A per litre was lower QoQ.

Thai Beverage (TBEV.SI / THBEV SP) 9 11 May 2016

Management has guided that malt price has been fixed for 2016 at about 10% lower than the year before. Also, the government has removed the import tariff on malt from Europe. Raw materials have been Raw materials only account for about 5% of revenues, but cost savings will help provide locked in at lower prices some buffer for an expected hike in excise taxes. YoY We also note that, with the new bottle change, packaging cost is expected to remain elevated for another 2-3 quarters, as management slowly builds up the ratio of recycled versus new bottles for production.

Figure 15: SG&A vs OP margin

33% SG&A/revenue OP margin 12%

7% 28%

2% 23%

-3%

18% -8%

13% -13%

8% -18%

3Q 2006 3Q 2012 3Q 1Q 2007 1Q 2007 3Q 2008 1Q 2008 3Q 2009 1Q 2009 3Q 2010 1Q 2010 3Q 2011 1Q 2011 3Q 2012 1Q 2013 1Q 2013 3Q 2014 1Q 2014 3Q 2015 1Q 2015 3Q 1Q 2006 1Q Source: Company data, Credit Suisse research

Figure 16: Breakdown of Chang's 2015 revenue cost Figure 17: Quarterly SG&A expense

Depreciation Labor Other Net profit 2,500 2% 1% 2% 3% Int exp & tax Raw Materials 1% 5% 2,000 SG&A 16% 1,500 Packaging 13% 1,000

500

0 Excise Tax

57%

1Q 2008 1Q 2009 3Q 2014 3Q 3Q 2006 3Q 2007 1Q 2007 3Q 2008 3Q 2009 1Q 2010 1Q 2010 3Q 2011 1Q 2011 3Q 2012 1Q 2012 3Q 2013 1Q 2013 3Q 2014 1Q 2015 1Q 2015 3Q 1Q 2006 1Q

Source: Company data Source: Company data, Credit Suisse estimates Taking the weight off spirits We expect beer revenues to show a 2015-18E CAGR of 12% while revenue margins will expand from 3.6% to 7.8% in 2018E. This creates a 51% 2015-18E CAGR in beer EBIT, Less reliance on spirits with albeit from a low base. It also marks a shift from earnings being purely driven by the spirits growth in beer business supporting the loss-making non-alcoholic division and the previously lacklustre beer division to a situation where spirits will form the stable base while the beer business will drive growth.

Thai Beverage (TBEV.SI / THBEV SP) 10 11 May 2016

Figure 18: Beer revenues to show a 12% CAGR Figure 19: Beer EBIT to show a 51% CAGR 70,000 5,000 2015-18E CAGR: 12% 60,000 4,000

3,000 50,000 2015-18E CAGR: 51% 2,000 40,000 1,000 30,000 0 20,000 -1,000

10,000 -2,000

0 -3,000 2005 2007 2009 2011 2013 2015 2017E 2005 2007 2009 2011 2013 2015 2017E

Revenue EBIT

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates International sales International sales only account for ~15% of total volumes at the moment. As per Vision 2020, the primary international markets that the company will be targeting are Myanmar and Singapore, while Malaysia and Cambodia will be secondary. Chang Classic is already being distributed in Thaibev's regional markets with F&N handling the distribution in Singapore. In ASEAN, Chang already has a presence in Thailand, Myanmar, and Singapore. For Cambodia, Thaibev has entered into an exclusive nationwide distribution contract with Attwood Import and Export (distributor of Corona, Johnny Walker, and Moet Hennessey products). There are still opportunities for Thaibev/F&N to expand inorganically, and the company could also be looking at entering Vietnam and Myanmar.

Thai Beverage (TBEV.SI / THBEV SP) 11 11 May 2016 A clear leader in Thai spirits The spirits market in Thailand is dominated by Thaibev with about 90% market share. Its white spirit brand, Ruang Khao, is the top-selling spirit in Thailand, accounting for ~50% of A clear leader with 90% total spirit volumes, according to Euromonitor. market share in Thai spirits Spirits is the largest segment in Thailand's alcohol industry accounting for 43% of total alcohol consumption by value in the country and 27% by volume. The spirits market has shown a 2005-15 CAGR of 2%.

Figure 20: 2014 alcohol consumption in Thailand by value Figure 21: 2014 alcohol consumption in Thailand by volume Wine 1% Wine 6% Spirits 27%

Beer Spirits 50% 43% RTDs/Premix 1% Beer 71%

RTDs/Premix 1% Source: Euromonitor Source: Euromonitor

Figure 22: Euromonitor spirits market share by brand (%) Brand Company 2011 2012 2013 2014 Ruang Khao Thai Beverage 47 48.1 49.9 50.2 Blend 285 Thai Beverage 6.9 9 10 10.9 Hong Thong Thai Beverage 10.3 9.6 9.4 9.9 Pai Thong Thai Beverage 2.7 2.7 2.7 2.7 Sang Som Thai Beverage 2.3 2.5 2.6 2.4 Mekhong Thai Beverage 1.7 1.8 1.9 2 Mungkorn Thong Thai Beverage 1.1 1.2 1.2 1.3 Siang Chun Thai Beverage 1.3 1.3 1.2 1.2 Crown 99 Thai Beverage 0.8 0.7 0.7 - Thaibev brands 74.1 76.9 79.6 80.6 100 Pipers Pernod Ricard 1.5 1.3 1.1 1 Regency Regency Thai 0.7 0.6 0.6 0.6 Master Blend Pernod Ricard 1.3 1.1 - - Others Others 22.5 20.3 18.8 17.8 Source: Euromonitor Off trade consumption Additionally, almost all consumption for white spirits is off-trade while brown spirits are only 10-15% on-trade. As such, restrictions on permitted selling hours and consumption on premises are unlikely to have a significant impact.

Thai Beverage (TBEV.SI / THBEV SP) 12 11 May 2016

Stable earnings base Its dominant position in the Thai spirits market provides a stable earnings base for Thaibev, accounting for 94% of its total EBITDA as the non-alcohol business is still Spirits forms a stable base unprofitable and Chang is just starting to turn in larger profits. The spirit's business is split for earnings into white and brown spirits with the two commanding market shares of ~94% and ~82% respectively. White spirits are priced lower (~Bt80-100 per bottle) and are mainly consumed off-trade and offer a cheaper alcoholic alternative for consumers to trade down while brown spirits (~Bt250-280 per bottle) have a more premium positioning and a higher proportion of on- trade consumption. The two segments provide resilience for Thaibev's earnings through economic cycles. Since listing, its total spirits sales volumes have been affected by political/economic fluctuations and excise tax hikes; however, gross profits have consistently continued to grow.

Figure 23: Fluctuations in spirit volumes… Figure 24: ...but steady growth in EBITDA Excise Excise Excise 35,000 900 Excise Excise tax Excise tax Excise taxExcise tax tax hike tax hike tax hike tax hike hike Aug hike May hike Aug hike Sept 800 Aug May Aug Sept 2007 2009 2012 2013 2007 2009 2012 2013 30,000 700

25,000 600

500 20,000

400 15,000 300

200 10,000

100 5,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E2017E2018E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Moving forward, we expect the spirits business to continue to form the majority of earnings and that majority to decline from 94% in FY15 to 82% in FY18 due to growth in beer. While Spirits expected to account gross profits will show a FY15-18E CAGR of 1%. for 82% of EBITDA in FY18 (from 94% currently)

Thai Beverage (TBEV.SI / THBEV SP) 13 11 May 2016

Figure 25: Spirits to stay as the main contributor to EBITDA but at a lower level (Bt mn) Spirits Beer Non-alcoholic beverages Food 38,000

33,000

28,000

23,000

18,000

13,000

8,000

3,000

(2,000) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E Source: Company data, Credit Suisse estimates Extensive distribution network Thaibev has 18 distilleries supporting the spirits business and an extensive distribution network covering 400,000 points of sale in Thailand. This allows the company to reach the Extensive distribution rural population which makes up over 50% of the country's population and creates network creates a key significant barriers to entry. The spirits distribution network is a key barrier to entry and its barrier to entry dominance was vital in the successful growth of Thaibev's beer business during the 1990s. Stable spirits margins Spirits' gross profit margins have largely come down over the past ten years owing to hikes in excise taxes which constitute the largest cost component at 53% of revenue. SG&A (9.3% of revenue), raw materials (6.4%), and packaging (4.8%) are the next largest sources of cost for the spirits division—these are bought based on long-term contracts and are likely to be maintained, going forward. Molasses prices rose by 6% in 2015 and management has fixed the pricing of its cost at similar levels in 2016.

Thai Beverage (TBEV.SI / THBEV SP) 14 11 May 2016

Figure 26: Breakdown of 2015 revenue costs Labor Other Depreciation 1% 1% 1% Packaging Raw 5% Materials Net profit 6% 19%

Int exp & tax 5%

SG&A 9%

Excise Tax 53%

Source: Company data, Credit Suisse estimates

Figure 27: Gross profit margin trend Figure 28: Excise tax per litre (Bt) GP Margin 37.0% 110.0 Excise tax hike Excise Excise tax 100.0 Aug tax hike 36.0% hike Aug 2012 Sept Excise tax Excise tax Excise 2013 2007 hike May tax hike hike Aug 90.0 2009 May 35.0% 2012 2009 80.0 Excise tax 34.0% hike Sept 2013 70.0

33.0% 60.0

32.0% 50.0

31.0% 40.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Thai Beverage (TBEV.SI / THBEV SP) 15 11 May 2016 Narrowing losses for non-alcohol Still in the investment phase We believe Thaibev is still in the investment stage of growing its non-alcoholic business particularly in the carbonated soft drink (CSD) segment given that Est was only launched Non-alcohol division still in in 2012 and reaching Vision 2020 (50% of revenues from non-alcohol division) will require investment phase further cross-selling of products. Additionally, further launches are expected to continue with Est only present in Malaysia and Thailand, while investment in growing 100 PLUS will continue. We believe there could be an opportunity to bring in F&N's Nutrisoy in Thailand as it would be able to target the largest liquid milk segment of the Thai market. We expect SG&A to remain elevated in 2016 and 2017 as Thaibev continues to grow its SG&A to remain elevated in recently launched brands. However, Thaibev will start to reap more returns from its 2016 and 2017 investments, and SG&A as a proportion of revenue will peak at 49% in 2015, resulting in division losses starting to narrow.

Figure 29: Non-alcohol SG&A to stay elevated but decline Figure 30: Non-alcohol LBIT to moderate moving forward as a proportion of revenue

(Bt bn) (Bt bn) Launch 9,000 60% 1,000 Est 8,230 8,394 7,990 7,975 8,000 500 7,087 50% 7,000 6,548 6,338 0 6,000 40% (500) 5,000 30% 4,000 (1,000) 3,106 3,000 20% (1,500) 2,000 1,637 1,210 10% (2,000) 1,000

0 0% (2,500) 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E (3,000) SG&A (Bt mn) SG&A/sales 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 31: CSD is the largest market in Thailand (2014) Concentrates RTD Coffee 0.2% 2.7% Juice 5.3%

RTD Tea 9.6% CSD 43.2% Sports and Energy Drinks 9.9%

Bottled Water 29.1%

Source: Euromonitor

Thai Beverage (TBEV.SI / THBEV SP) 16 11 May 2016

Growing traction for 100 PLUS The core brands under the CSD segment are F&N's 100 PLUS and Thaibev's Est Cola. 100 PLUS was launched in Thailand last year and was positioned as a healthy carbonated soft drink (CSD)—it already commands 1-2% market share. Additionally, the strong offering of the brand has allowed F&N to use it to start its expansion into new markets. In 2015, F&N opened up offices in Myanmar and Vietnam, beginning the venture into those markets via 100 PLUS. Further opportunities in those markets are likely to come in the form of ready-to-drink (RTD) teas, and Myanmar is already looking to launch Seasons. Est was launched in 2011, after Sermsuk's bottling contract with Pepsi ended. To date, its market share has been holding stable at about 10-12%. Thailand's CSD market is We expect management to dominated by Pepsi and Coca-Cola which have a combined market share of 85%. focus on building existing Overseas, Est was officially launched in Malaysia in 4Q15 after a mid-year campaign that brands in the near term distributed 200k cans to consumers during Hari Raya. rather than aggressively launching new ones Recent new launches in the CSD sector have been with new flavours for Est such as grape berry and lychee pear. We believe management will look to focus on building up existing brands in the short term, rather than aggressively launching new ones. CSD makes up ~30% of non-alcoholic beverages, and we estimate that revenues will show a CAGR of 13% over 2015-18E. Strong growth in Crystal Water Growing awareness in health and wellness has driven growth in the drinking water market in Thailand with a 2009-14 CAGR of 7.1% compared with carbonated soft drinks, which showed a CAGR of 3.8% over the same period. In 2015, the market grew 11% and the We have projected water double-digit growth is expected to continue, moving forward. We have projected for sales sales volumes to show a volumes to show a 2015-18E CAGR of 9%. Drinking water accounts for ~35% of non- 2015-18E CAGR of 9% alcoholic beverage revenues. Given the strong growth trajectory, Sermsuk expects to spend a total of Bt2.5 bn to expand capacity to 1.1 bn litres by 2020. Oishi starting to stabilise with stable marketing Oishi has continued to lose market share in the RTD tea segment since Ichitan was launched in 2011. The intense competition in the market has led Oishi to cut ASPs, Market share losses have diluting its gross profit margins, and aggressively spending on marketing to protect market started to flatten out share. ASPs continue to decline; however, market share looks to have moderated. Oishi launched Jub Jai in 2015 to counter Ichitan's Yen Yen herbal tea as the green tea market slowed, but SG&A is likely to stay high as Oishi and Ichitan continue to fight for market share. EBIT margins have also been trending up with a change in marketing strategy. SG&A has continued to decrease since 2013. Management is no longer looking to invest heavily in "hard sell promotions" but is instead focusing on building brand loyalty and sustainable EBIT margins have long-term growth. improved with a change in marketing strategy Oishi already exports to ~20 countries and is in line with Vision 2020—Vietnam and Myanmar are the top priority markets. Vietnam has been the main target for changes in production bases and plans are afoot to export there in the first one or two years before opening a factory in the third year.

Thai Beverage (TBEV.SI / THBEV SP) 17 11 May 2016

Figure 32: 4Q moving average—ASPs are still falling… Figure 33: ...but EBIT margins rising on lower SG&A… (Bt/litre) 25% 26.0 Ichitan green Ichitan green tea launched 20% tea launched 25.0

15% 24.0 10% 23.0 5%

22.0 0%

21.0 -5%

20.0 -10% 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 34: …while market share losses are stabilising 100.0% 90.0% 80.0% 70.0% 36.0% 60.0% 39.0% 37.7%

50.0% 44.0% 40.0% 57.0% 30.0% 46.0% 20.0% 42.1% 43.8% 27.1% 10.0% 7.7% 0.0% 2011 2012 2013 2014 2015

ICHI OISHI PURIKU LIPTON Others

Source: Nielsen F&N's role is key for non-alcohol F&N will play an integral role under Vision 2020, focusing on expanding in Southeast Asia by leveraging on Thaibev and its own distribution network. The primary markets include Thailand, Malaysia, Singapore, and Vietnam, while secondary markets include Myanmar, the Philippines, and Indonesia. Of the primary markets, Thaibev and F&N already have a strong presence in Thailand, Malaysia, and Singapore. As such, Vietnam remains a key growth focus, and at the moment F&N has a presence there via its 9.5% stake in Vinamilk; however, it has just started venturing into the country with its own brands. Vivek Chhabra is the new Leveraging on F&N's expertise MD of Thai Drink and the With the new streamlined management structure, Thaibev has also brought in Vivek president of Sermsuk—he Chhabra as the MD of Thai Drink, the entity in charge of the distribution of Oishi and is was previously the CFO of responsible for the brand building of the non-alcohol division. Additionally, he is also non-alcoholic beverages at President of Sermsuk, replacing Dhitivute Bulsook, as of 1 October 2015. Dhitivute will F&N serve as the third vice chairman of Sermsuk's executive committee. Chhabra was previously the CFO of non-alcoholic beverages at F&N and has had held several posts during his ~20 years with APB/F&N. His previous roles have been more regional focused

Thai Beverage (TBEV.SI / THBEV SP) 18 11 May 2016 and he has worked in Singapore, India, Vietnam, and Pacific Islands and acquired a knowledge in entry strategies and M&As. We also understand that communication between several non-alcohol groups (Oishi, Sermsuk, Thai Drink) within Thaibev has improved significantly with regular meetings Communication and between groups helping drive synergies—examples include, using excess capacity at coordination have improved Oishi to address capacity needs from Crystal Water. Additionally, feedback within the CSD within non-alcohol entities segment has also improved with the marketing, sales, and distribution teams communicating more actively to help formulate/determine more effective marketing campaigns.

Figure 35: Vivek Chhabra—extensive regional experience in strategy and M&A Date Position Oct-15 – Present President, Sermsuk and Thai Drinks Apr-15 – Oct-15 CFO Non-alcoholic beverages, F&N 2007 – 2014 Director Group Biz Development & Regional Director South Asia, Heineken 2003 – 2007 Director Group Biz Development APAC, Heineken 2000 – 2003 Director Group Finance APAC, APB 1997 – 2000 Finance Manager Vietnam, APB 1995 – 1997 Finance Manager APAC, Heineken 1985 – 1995 Finance Manager/Controller, Britannia Source: Linked In Consolidating F&N this year? Thaibev is targeting to grow its non-alcohol revenue contribution to over 50% by 2020 from its current contribution of only ~13%. Additionally, Thailand still accounts for the majority, i.e., 95%, of its revenues today vs the target of 50% under Vision 2020. We believe getting to the target will require some inorganic growth in the non-alcoholic Thaibev expected to division with the most anticipated one being Thaibev consolidating TCC's 59.4% in F&N. consolidate TCC's 59.4% stake in F&N Getting a larger share in F&N Thaibev and its major shareholder Charoen (via TCC Assets) became major shareholders in F&N and subsequently FCL (demerger from F&N and listing in January 2014) in 2012- 14. Currently, Thaibev owns a 28.6% stake in F&N and a 28.5% stake in Fraser Centrepoint Limited (FCL). Meanwhile, Charoen, via TCC Assets, holds a 59.4% and a 59.3% stake in F&N and FCL, respectively. F&N's arbitration over Myanmar Brewery now out The market has long been expecting Thaibev to swap its 28.5% stake in FCL for TCC's of the way 59.4% stake in F&N in order to make Thaibev a purer beverage play. One of the main hurdles for delaying a potential deal was the pending arbitration forcing F&N to sell its 55% stake in Myanmar brewery (owner of Myanmar Beer and Andaman Gold) to its JV partner Myanmar Economic Holdings (MEHL). That has since been settled with F&N agreeing to sell its stake for S$755 mn in October 2015. As such, we believe the swap/deal is likely to occur in 2016. Consolidation of F&N would imply that non-alcoholic Post consolidation of F&N, non-alcoholic beverages is expected to account for 34% of beverages account for 35% total revenues. of revenue

Thai Beverage (TBEV.SI / THBEV SP) 19 11 May 2016

Figure 36: Non-alcoholic beverages revenue contribution rises to 34% post consolidation

Non-Alc 13%

Non-Alc 34% Post - F&N consol

Alc 66%

Alc 87%

Source: Company data, Credit Suisse estimates Valuations imply a fairly even swap Simply based on the current market caps, Thaibev's stake in FCL is worth S$1.39 bn while TCC Assets' stake in F&N is worth S$1.66 bn, implying that Thaibev will need an Based on current market additional S$269 mn if the deal is done at the current levels. caps, Thaibev would have to pay an additional S$269 mn However, we note that FCL currently trades at a price to book of 0.7x, partly due to the low for F&N liquidity of the stock. FCL re-evaluates its assets on a yearly basis, implying that the fair value of the company trades at a P/B of 1.0x , valuing Thaibev's stake at S$1.86 mn. This would imply that at the fair valuation, the stakes are similarly valued and would not require any capital outlay. Cleaner beverages exposure F&N is a dominant dairy and beverages company and has the largest beverages market share in Malaysia and second largest in Singapore. In dairy, it commands the largest canned milk market share in Thailand (44%) and Malaysia (58%) while having the largest pasteurised juice and canned milk market share in Singapore (No. 2 in liquid milk). An FCL/F&N stake swap will make Thaibev a much cleaner beverages company, and remove its exposure to property. We believe some of the synergies are starting to take place with the managerial changes, particularly from leveraging off the experience of F&N/APB veterans in the beer and non-alcoholic segments while cross-selling of products such as Est and 100PLUS which are at the early stages of gaining further traction. Strengthening the balance sheet We estimate F&N/FCL's contribution to Thaibev to be between Bt3.6 bn and Bt4.0 bn to Thaibev's PBT from 2016E-18E at current stakes. Given the sales of APB and Myanmar Brewery, the profit contribution from F&N is significantly lower than FCL—as such, a swap would result in a decline in net profit by about 6% or Bt1.4-1.5 bn. However, Thaibev's balance sheet would look even stronger post swap, with net debt to EBITDA declining to 0.6x from 1.1x given that F&N is in net cash after its sale of Myanmar F&N's net cash position will Brewery. This will leave significant room of about Bt75 bn for acquisitions given Thaibev's strengthen Thaibev's target gearing is 2.5x net debt to EBITDA. balance sheet, leaving ~Bt75 bn for acquisitions We estimate that gearing up and spending that Bt75 bn on acquisitions in the range of 15- 20x P/E would add about 6-11% accretion to our EPS forecasts.

Thai Beverage (TBEV.SI / THBEV SP) 20 11 May 2016

Several potential acquisitions mentioned so far Sabeco The timing of any potential Sabeco deal is uncertain, and it may be incrementally more appealing to enter the Vietnamese market (has one of the highest beer consumption per capita in ASEAN) via a stake in a strong existing brand given that competition in the local beer market has intensified with Singha's acquisition of a stake in Masan group's consumer and brewery businesses.

Figure 37: Beer products under the Sabeco brand

Source: Company Vinamilk The State Capital Investment Corporation in Vietnam is reportedly looking to sell its 45.1% stake in Vinamilk. However, similar to the potential Sabeco sale, the timing of a potential sale and the manner in which it will be sold are still uncertain. F&N, already the second- largest shareholder with a 9.5% stake in the acquisition, has expressed its interest in raising its stake. Vinamilk is the dominant player (48% market share) in Vietnam's dairy market, a market where there is further demand growth potential given its young population (42% aged below 25) and lagging milk consumption per capita in Asia (18 kg).

Figure 38: Products under the Vinamilk brand

Source: Company

Thai Beverage (TBEV.SI / THBEV SP) 21 11 May 2016 Initiating with OUTPERFORM Initiating with an We initiate Thaibev with an OUTPERFORM rating and a target price of S$0.85 per share, OUTPERFORM rating implying an upside of 14%. Our target price is based on a sum-of-the-parts valuation methodology, given Thaibev's varying market position across its various businesses. Target price of S$0.85 Figure 39: Breakdown of sum-of-the-parts implies 14% upside Component Units Value Multiple Value to THBEV THBEV spirits DCF Bt mn 444,759 THBEV beer DCF Bt mn 59,258 Non-alcohol and food DCF Bt mn 20,913 F&N (Equity value) FY16 EBITDA Bt mn 6,091 8.0 22,286 FCL (Equity value) P/B Bt mn 47,089 0.8 38,424 Net debt (FY15 end) + minorities Bt mn (44,419)

NAV Bt mn 541,222 Number of share Bt mn 25,110 Target price S$ 0.85 Note: SGD/THB of 25.5. Source: Company data, Credit Suisse estimates. Premium valuation for dominant market share in spirits We value the spirits business based on DCF analysis using a WACC of 7.1% (adjusting WACC for dominant position) and a terminal growth rate of 2.3% which results in an DCF valuation for spirits enterprise value of Bt445 bn. business implies 16x EV/EBITDA, in line with Our valuation implies an EV/EBITDA of 16x for the spirits business while consumer consumer staples peers staples in Thailand trades at EV/EBITDA of 14.3x with ranging between 13x and 17x. This puts Thaibev's spirits business at the higher end of that range which we believe is reasonable given its dominant position of 90% market share, while its other consumer staples peers in Thailand are much more fragmented. We believe the strength of the spirits business will continue to be unlocked as the other businesses' cash flows start to improve, which has already started in beer. Growing beer business We have also valued the beer business based on DCF analysis using a WACC of 9.3% DCF valuation for beer and a terminal growth rate of 2.3% which gives us an enterprise value of Bt59 bn. business implies This implies an EV/EBITDA valuation of 18.0x for CY16; however, given our growth EV/EBITDA, in line with expectations for Chang Beer, this moves to 12.3x in CY17, below the Thai consumer consumer staples peers staples EV/EBITDA of 13.3x and in line with the global brewer companies of 11.5x.

Figure 40: Thai consumer staples peers P/E (x) EV/EBITDA (x) Yield (%) EPS growth (%) Ticker Company Price Mkt cap 2016C 2017C 2016C 2017C 2016C 2017C 2016C 2017C (LC) (US$ mn) CPALL.BK C.P. All 48.25 12,310 25.6 21.2 16.2 14.4 1.96 2.36 24% 21% CPF.BK CPF 26.00 5,718 25.9 18.5 13.3 12.0 1.93 2.71 77% 40% BIGC.BK Big C Supercenter 238.00 5,577 24.4 21.7 14.5 13.2 1.23 1.38 17% 13% MAKRO.BK Siam Makro 34.00 4,635 25.8 22.6 16.3 14.4 2.91 3.32 18% 14% TU.BK Thai Union 21.40 2,900 15.1 14.2 10.7 10.2 3.30 3.52 11% 7% ICHI.BK Ichitan 11.90 439 15.9 14.2 10.1 9.3 4.20 4.20 20% 12% CBG.BK Carabao 40.00 1,136 29.9 27.7 20.9 19.4 1.63 1.75 7% 8% Average 23.2 20.0 14.6 13.3 2.5 2.7 25% 16% Source: Company data, Credit Suisse estimates

Thai Beverage (TBEV.SI / THBEV SP) 22 11 May 2016

Figure 41: Global alcohol beverage peers P/E (x) EV/EBITDA (x) Yield (%) EPS growth (%) Ticker Company Price Mkt cap 2016C 2017C 2016C 2017C 2016C 2017C 2016C 2017C (LC) (US$ mn) Beer ABI.BR Anheuser-Busch InBev 112.05 204,855 36.1 25.3 14.9 13.8 3.53 3.71 -31% 43% SAB.L SABMiller 4,217.50 98,780 27.1 24.9 22.0 20.5 0.03 0.03 2% 9% CARLb.CO Carlsberg 638.00 14,868 20.7 18.4 11.1 10.5 1.45 2.72 3% 13% HEIN.AS Heineken 83.20 54,479 21.9 20.2 13.3 12.5 1.66 1.80 5% 8% 2502.T Asahi Group Holdings 3,577.00 14,990 20.0 18.2 10.0 9.1 1.48 1.65 8% 10% CBMS.KL Carlsberg Msia 12.52 952 16.6 15.7 12.0 11.4 5.94 6.29 7% 6% HEIN.KL Guinness Anchor bhd 15.02 1,120 14.9 17.0 10.6 10.8 6.00 5.62 36% -12% 2501.T Sapporo Holdings 609.00 2,195 24.5 21.2 5.1 4.9 1.16 1.21 59% 15% 2503.T Kirin Holdings 1,784.00 14,892 28.1 24.7 10.2 9.6 2.13 2.19 NM 14% Beer average 23.3 20.6 12.1 11.5 2.6 2.8 11% 12% Spirits DGE.L Diageo 1,889.50 68,699 20.3 18.6 17.4 16.2 0.03 0.03 5% 9% PERP.PA Pernod Ricard 96.81 29,211 18.3 17.1 14.2 13.6 1.92 2.05 4% 7% UNSP.BO United Spirits 2,640.70 5,760 82.1 55.0 36.5 29.4 0.00 0.00 NM 49% RFRG.AS Refresco Gerber 16.19 1,494 14.0 12.3 7.7 7.0 2.64 3.16 19% 14% Spirits average 33.7 25.8 19.0 16.6 1.1 1.3 9% 20% TBEV.SI Thaibev 0.75 13,673 19.3 17.9 18.0 16.8 3.5 3.9 8% 8% Total average 21.9 19.5 12.4 11.7 2.3 2.5 9% 10% Source: Company data, Credit Suisse estimates 9x EV/EBITDA for F&N and non-alcoholic/food valuation in line with market cap We value Thaibev's stakes in F&N at 9x EV/EBITDA, in line with its historical average of 9x. This results in an equity value of S$22,286 mn (at 100% in F&N). F&N's valuation based on a historical average Figure 42: F&N historical EV/EBITDA EV/EBITDA of 9x 13.00

12.00

11.00

10.00

9.00

8.00

7.00

6.00

5.00 Oct-03 Sep-04 Aug-05 Jul-06 Jun-07 May-08 Apr-09 Mar-10 Feb-11 Jan-12 Dec-12 Nov-13 Oct-14 Sep-15

EV/EBITDA Average + 1 SD - 1 SD

Source: Company data, Credit Suisse estimates Non-alcohol and food DCF For the non-alcoholic and food division our DCF gives us a valuation of Bt20,913 mn, valuation implies a P/B of which implies a P/B of 0.8x as of 2015 book value. We believe this is fair given the near- 0.8x term losses expected from the non-alcoholic division.

Thai Beverage (TBEV.SI / THBEV SP) 23 11 May 2016

0.8x P/B valuation for FCL, similar to developer peers For FCL, we use a 0.8x historical P/B similar to other developers in Singapore and given that the company re-evaluates its assets on an annual basis. We believe the valuation is Valuation of FCL on a P/B of fair given that ~80% of FCL's assets and ~60% of EBIT are from investment properties, 0.8x similar to peers such CAPL which trades at 0.8x. Sustainable beer turnaround will give confidence on extracting more upside P/Es at a 12-17% discount to Thai consumer and global alcohol peers Undemanding valuations— Thaibev's CY16 P/E of 19.3x is at a 17% discount to Thai consumer staples at 23x. P/E at a 15-17% discount to Although EPS growth from FY16-18 is lower than its Thai consumer staples peers, we peers believe Thaibev's 90% dominance in spirits provides a premium for stability. Thaibev trades at a 12% discount to global alcohol peers which have an average P/E of 22x despite having a similar growth profile. Further upside to earnings from potential acquisitions We have not factored in any acquisitions into our target price and further upside could come from further initiatives. In the more immediate term, the corporate exercise to swap the FCL and F&N stakes with TCC is expected—this will allow for added flexibility and drive growth through acquisitions. Targets under Thaibev's Vision 2020 include growing Acquisitions could drive overseas and non-alcoholic beverage revenues to account for 50% of revenues. further earnings growth We believe that acquisitions could provide another catalyst for share price performance. As mentioned in the previous section, we believe that acquisitions in the range of 15-20x P/E could drive further earnings upside of 6-11%. Further upside from improving route to market We believe there could be further upside extracted through synergies by addressing overlaps or enhancing the distributions of products on Sermsuk and Thaibev's distribution Further synergies could be channels. unlocked through improving the route to market In the north east, Sermsuk's distribution channels are weak with only about 150 trucks, while Thaibev has 350 trucks and has a strong distribution network given its dominance in the spirits market. There are likely to be other synergies with the provinces in the south and even deciding on innovative routes to market. Enhancing distribution with Big C? Thaibev's distribution on the modern trade channel will continue to be enhanced with TCC's acquisition of Casino Group's 58.6% stake in Big C. Our Thai retail analyst, Warayut Luangmettakul, believes TCC's acquisition could lead to a new era for BIGC with the company potentially turning more aggressive in its store expansion plan given: (1) it will no longer be constrained by Casino Group's conservativeness, (2) TCC's holding of sizeable land plots could help accelerate BIGC's store openings. We believe there could be some potential upside from improved shelf positioning or visibility of promotions of Thaibev's/F&N products.

Thai Beverage (TBEV.SI / THBEV SP) 24 11 May 2016

Figure 43: Estimated year-end number of stores for existing Thai retailers 2015 2016E 2017E BIGC–large stores 125 131 135 BIGC–Supermarkets 55 58 71 BIGC–CVS 391 466 536 CPALL (7-11) 8,832 9,532 10,232 MAKRO 91 101 111 HMPRO 83 90 98 ROBINS 42 44 47 GLOBAL 38 45 50 Source: Company data, Credit Suisse estimates

Figure 44: Thaibev—distribution channel

Source: Company data

Thai Beverage (TBEV.SI / THBEV SP) 25 11 May 2016 Key risks Excise tax hike expected in 2016 Historically, excise taxes have occurred once every 2-3 years, implying that the next excise tax hike is likely to occur in 2016. The government has already raised the excise Excise tax hike is a key risk tax on cigarettes by 3% and a potential hike in alcoholic beverages is expected to be next. For now, we have not factored in any excise tax hike in our forecast

Figure 45: Impact of excise hikes/levy to Thaibev prices Beer White Brown Comment 2007 12% 2008 1.50% 1.50% 1.50% Thai Public Broadcasting Service levy 2009 26.70% 8.40% 7.10% 2012 - 25.0% 10.5% 2013 15-20% 2.0% 10-15% 2014 2015 2.0% 2.0% 2.0% National sports development fund 2016 ? ? ? Source: Company, Credit Suisse research Higher margins initially following rate hike Historically, Thaibev has been able to pass the higher excise tax on to consumers, Historically, Thaibev has maintaining margins. Additionally, due to expectations of the tax increase, there tends to passed on higher costs to be an initial expansion in margins, post a tax hike, as Thaibev sells old stock (subject to consumers old excise tax rates) at the new higher prices. Thaibev has managed to maintain its spirits gross margins at around 30-34% historically, while consumers trading down from higher-margin brown spirits to the lower-margin white spirits have caused some margin erosion in the past few quarters. Given the continued down trading, Thaibev's current volume mix is 70% white spirits and 30% brown spirits.

Figure 46:Spirits—gross margin trend

Excise tax Excise tax Excise tax hike Excise tax hike Aug hike May Aug 2012 hike Sept 40% 2007 2009 Increase price of 2013 brown spirits 38% Molasses cost 36% also low White spirit price 34% increase 5% 32% 30% 28% 26% 24% 22%

20%

2Q 2006 2Q 2008 1Q 2009 4Q 2011 3Q 2013 2Q 2015 1Q 3Q 2006 3Q 2006 4Q 2007 1Q 2007 2Q 2007 3Q 2007 4Q 2008 2Q 2008 3Q 2008 4Q 2009 1Q 2009 2Q 2009 3Q 2010 1Q 2010 2Q 2010 3Q 2010 4Q 2011 1Q 2011 2Q 2011 4Q 2012 1Q 2012 2Q 2012 3Q 2012 4Q 2013 1Q 2013 3Q 2013 4Q 2014 1Q 2014 2Q 2014 3Q 2014 4Q 2015 2Q 2015 3Q 2015 4Q 1Q 2006 1Q Source: Company data, Credit Suisse estimates

Thai Beverage (TBEV.SI / THBEV SP) 26 11 May 2016

Stocking up on spirits We understand that timing the rate hike is likely to be harder this time around; however, given that excise taxes on tobacco have already been announced, alcohol is expected to Timing of excise tax hike follow suit. As such, management has started to raise production on spirits in anticipation has been harder to while being confident it can pass on the excise hike to maintain margins—but any more determine this time around than that will be difficult. Stocking up on the beer front may be a bit tougher, given that the freshness of the product will be a bigger factor compared to that of the spirits business. Sugar tax? There is news flow and speculation around the expansion of excise taxes to include sugary drinks such as RTD tea, RTD coffee and sweetened fruit juice. There are currently News flow and speculation excise taxes on soda water (25% of ex-factory price), carbonated soft drinks and energy around expanding sugar drinks (20% of ex-factory prices). taxes to include RTD tea, coffee, and sweetened fruit If the tax were to be expanded to include other categories of sugary drinks, we believe the juice incremental cost would be minimal for Thaibev given that RTD tea from Oishi only accounts for an estimated 4% of total revenue. RTD tea from Oishi only Manufacturers believe the tax may not come through in the near term given that the accounts for about 4% of burden may be passed on to consumers. Similarly, on the supply side, the tax will not only revenue affect retailers but also tea leaf suppliers in northern Thailand. How big a hike? There remains uncertainty around how large the excise tax hike could be. The rate could partly be motivated by the need to gain higher tax revenue due to the current budget deficit while also addressing health issues related to alcohol. Some expect that the excise tax increase will be on changing the calculation from whole sale price to retail price. Volumes on white spirits tend to be more price sensitive given the lower income level of the consumers, and there could be a risk that consumers could turn toward moonshine which would also be more damaging to health.

Figure 47: Current excise tax Excise Tax Calculation Excise Tax Rate = (1) + ( (2) or (3) whichever is higher) + (4)

Old tax rate excise tax rate since 4 September 2013 Tax rate based on Based on Value Volume Tax rate based on the volume Additional tax for higher alcohol value. Types of alcohol Condition Value = net wholesale Higher of (2) or (3) as calculated Condition Bt/litre % of ex factory Bt/lt of 100% price % Per litre of 100% Bt/litre px alcohol alcohol (1) (2) (3) (4) Fermented Liquor Beer 60% (ceiling) 100 (ceiling) 60% (ceiling) 300 (ceiling) 30 (ceiling) Beer 60% 100 Effective rate 48% 155 8 >7% 3

Wine 60% (ceiling) 100 (ceiling) 60% (ceiling) 2000 (ceiling) 300 (ceiling) Wine & sparkling wine from grapes 60% 100 Effective rate: Wholesale <= 600 0% 1000 225 >15% 3 Wholesale > 600 36% Other fermented liquor 60% (ceiling) 100 (ceiling) 25% (ceiling) 150 (ceiling) 30 (ceiling) Local fermented liquor 25% 70 Effective rate 5% 70 10 >15% 3 Other Distilled Liquor Spirits White Spirits 50% (ceiling) 400 (ceiling) 50% (ceiling) 400 (ceiling) 60 (ceiling) 50% 150 Effective rate 4% 145 40 >40% 3 Brown Spirits 50% (ceiling) 400 (ceiling) 50% (ceiling) 400 (ceiling) 60 (ceiling) Compounded spirits 50% 350 Special blended 50% 400 Effective rate 25% 250 50 >45 % 3 Special spirits 50% 400 Other distilled spirits - - Note: On top of excise tax + Municipal taxes = 10% of Excise, + Health Promotion Fund Contribution = 2% of Excise, + Thai Public Broadcasting Service Fund Contribution: 1.5% of Excise, + National Sports Development Fund Contribution: 2% of Excise Source: Company data

Thai Beverage (TBEV.SI / THBEV SP) 27 11 May 2016

Change in regulations In July 2015, the Thai government introduced further regulations, restricting the times during which alcoholic beverages can be sold, limiting these to 11.00 am to 2.00 pm and Further regulations could from 5.00 pm to 12.00 am every day. Entertainment venues which in the past were hurt alcohol sales but most allowed to sell alcohol from 9.00 pm to 2.00 am can only do so up to midnight. of spirits and beer volumes Additionally, the sale of alcohol (by grocery stores and convenience stores) has also been are off-trade banned near schools and educational institutions. Stricter regulations such as these are more likely to impact the on-trade portion of sales which makes up 33% of beer and 10- 15% of brown spirit volumes. Almost all of white spirits volumes are off-trade. Aggressive marketing from competitors Thaibev is looking to grow market share, particularly for its non-alcoholic and beer divisions. Potential risks could arise from a potential disruptive response from Boon Rawd Aggressive and successful Brewery to quickly regain market share from Chang. marketing by competitors could require additional The non-alcoholic divisions are also susceptible to aggressive marketing campaigns from SG&A spend competitors—Ichitan in the RTD segment is well known for its aggressive giveaways (cars, gold bars etc.). Foreign exchange risks Thaibev is listed in Singapore and trades in SGD while its earnings are predominantly in Thailand. Moving forward, the company plans to grow its overseas revenue to account for 50% of revenues which would create further forex exposure. Natural disasters As we saw during the 2011 floods, natural disasters may temporarily impact overall production and distribution of Thaibev's products, depending on location. In 2011, Thaibev was impacted by a Bt160 mn loss from the floods in Thailand. Economics risks Macroeconomic and microeconomic risks could affect economic growth and the company’s sales accordingly.

Thai Beverage (TBEV.SI / THBEV SP) 28 11 May 2016

Companies Mentioned (Price as of 10-May-2016) Anheuser-Busch InBev (ABI.BR, €112.05) Asahi Group Holdings (2502.T, ¥3,577) Big C Supercenter PCL (BIGC.BK, Bt238.0) C.P. ALL PCL (CPALL.BK, Bt48.25) Carabao Group PCL (CBG.BK, Bt40.0) Carlsberg (CARLb.CO, Dkr638.0) Carlsberg Brewery (CBMS.KL, RM12.52) Charoen Pokphand Foods Public (CPF.BK, Bt26.0) Diageo (DGE.L, 1889.5p) Guinness Anchor Bhd (HEIN.KL, RM15.02) Heineken (HEIN.AS, €83.2) Home Products Center PCL (HMPRO.BK, Bt8.15) Ichitan Group PCL (ICHI.BK, Bt11.9) Kirin Holdings (2503.T, ¥1,784) Pernod-Ricard (PERP.PA, €96.81) Refresco Gerber (RFRG.AS, €16.19) Robinson Department Store PCL (ROBINS.BK, Bt54.5) SABMiller (SAB.L, 4217.5p) Sapporo Holdings (2501.T, ¥609) Siam Makro PCL (MAKRO.BK, Bt34.0) Thai Beverage (TBEV.SI, S$0.74, OUTPERFORM, TP S$0.85) Thai Union Group (TU.BK, Bt21.4) United Spirits Ltd. (UNSP.BO, Rs2640.7)

Disclosure Appendix Important Global Disclosures I, Nicholas Teh, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Robinson Department Store PCL (ROBINS.BK)

ROBINS.BK Closing Price Target Price Date (Bt) (Bt) Rating 27-Jun-13 62.50 69.00 N 12-Aug-13 56.00 55.00 12-Sep-13 54.50 53.20 05-Feb-14 45.25 48.00 21-Feb-14 46.00 46.00 23-Feb-15 48.00 42.00 12-May-15 44.00 39.00 U * 18-May-15 47.00 40.00 04-Sep-15 40.00 41.00

09-Mar-16 43.00 38.00 NEUTRAL 16-Mar-16 48.75 53.00 O UNDERPERFORM OUTPERFORM * Asterisk signifies initiation or assumption of coverage.

Thai Beverage (TBEV.SI / THBEV SP) 29 11 May 2016

3-Year Price and Rating History for Thai Beverage (TBEV.SI)

TBEV.SI Closing Price Target Price Date (S$) (S$) Rating 15-Jan-14 0.54 0.60 O * 17-Mar-14 0.61 0.68 14-Aug-14 0.62 0.71 17-Nov-14 0.72 0.71 N 27-Feb-15 0.70 0.73 28-Oct-15 0.68 NR * Asterisk signifies initiation or assumption of coverage.

OUTPERFORM NEUTRAL N O T RAT ED

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple se ctors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 57% (37% banking clients) Neutral/Hold* 33% (24% banking clients) Underperform/Sell* 9% (44% banking clients) Restricted 1% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Thai Beverage (TBEV.SI / THBEV SP) 30 11 May 2016

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. This material is intended for your use only and not for general distribution. This material is not intended to promote or procure a particular outcome in the UK referendum on membership of the European Union (the “Referendum”). Credit Suisse does not promote or endorse either campaign in the Referendum. This material does not constitute, and should not be interpreted as, a recommendation by Credit Suisse as to the merits of a particular outcome of the Referendum.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Thai Beverage (TBEV.SI) Method: We use a sum-of-the-parts valuation for Thaibev for a valuation of S$0.85 per share. We use DCF for the spirits, beer and non- alcohol/food businesses, using a WACC of 9.1%, and terminal growth of 2.3%. Our valuations for the associate stakes are based on 9x EV/EBITDA for F&N and 0.8x P/B for FCL. We believe Thaibev will continue to be successful in turning around its beer business while the spirits business forms a stable base for earnings and confidence around further synergies improves. Hence, our OUTPERFORM rating. Risk: The risks to our TP of S$0.85 and OUTPERFORM rating for Thaibev are: (1) political unrest in Thailand may have an impact on the sale of spirits, beer and non-alcoholic beverages (and OISHI's food business) in Thailand; (2) excise duty increases: further increases in excise duties in Thailand can affect sales of spirits/beer or both; (3) increased competition, more entrants into the non-alcohol business from other brands could create further headwinds for the non-alcohol division and prolong the timing of breakeven; (4) economic downturn: a significant downturn in economic activity could affect consumer spending which could hurt growth in consumption for beverages.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (TBEV.SI, ROBINS.BK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (TBEV.SI, ROBINS.BK) within the next 3 months. Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014 Credit Suisse may have interest in (UNSP.BO). Credit Suisse are acting as financial advisor to Altria Group, Inc in connection with AB InBev's proposed merger with SABMiller plc. Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Thai Beverage () , Robinson Department Store PCL (Excellent)

Thai Beverage (TBEV.SI / THBEV SP) 31 11 May 2016

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse AG, Singapore Branch ...... Nicholas Teh

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Thai Beverage (TBEV.SI / THBEV SP) 32 11 May 2016

References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who-we-are This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse International, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited (CIN no. U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an Australian financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2016 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

Thai Beverage CS0908 (TBEV.SI / THBEV SP) 33