It's been a remarkably tough time for Thai Beverage. It was denied a public listing in its home country because of opposition by anti alcohol lobbyists. The affable CEO of the Stock Exchange of Thailand Kittiratt na Ranong, whom I have worked with on the SET Awards, and who ran a pretty professional outfit from what I could see, quit when ThaiBev listed on the Singapore Exchange instead.
But what's even more remarkable about this story is how well the stock price has held up.
Background:
The latest whammy for the maker of Chang Beer came in the last week from the Thai government of Prime Minister General Surayudh Chulamont. First, the Food and Drug Administration banned alcohol advertising on October 18. This means you will no longer see any advertisements for alcoholic products on television, on billboards or in newspapers, and you won't hear them on radio either. Second, the Public Health Ministry is considering raising the drinking age to 25 years of age.
The good news – if any can be found in this tale of woe – is that Thai Beverage barely spends money on advertising its mass or "economy" products.
The bad news – and there's lots of it – is that Thai Beverage relies heavily on advertising to build up its premium brands. But it will likely focus their marketing efforts more on distribution, "which we clearly have an advantage", they said. At the same time, "launching new products will be increasingly difficult, with higher barriers to entry to the Thai alcoholic beverage industry".
"Television advertising is by far the most effective means for the introduction phase of a new product", which is presumably the reason why the government wanted to ban it.
Perhaps the worst aspect of all this is that "it is unclear what impact the new policy will have on the consumption of alcoholic beverage in Thailand in the long run". Markets just love this sort of uncertainty. Not!
Restrictions on point-of-sale promotional material "undoubtedly means that younger generations of Thais will eventually grow up with limited exposure to alcoholic beverage products", although given the absence of similar experience overseas means it's hard to quantify the impact of all this.
You could barely have heard a company use more plain and director language to paint a more glum long term outlook.
Sounds pretty dire, right?
How did the stock price react?
Not at all.
Thai Beverage is still hanging around the 28 to 29 cent range, which it entered into two months ago. The analyst call as surveyed by Reuters is still on average an 'outperform' with a price target of S$0.32.
I cannot understand why. According to Reuters data, at S$0.29 the stock is already trading 3.2 times higher than its book value of S$0.09.
3.2 times book value! My goodness! That's how much DBS paid for Dao Heng Bank in Hong Kong in 2002 and was roundly criticised.
If it wasn't for the fact that it was likely to pay a dividend of about S$0.01 per share (according to the Reuters forecast) I don't know why anyone would buy into such a problematic business!
The only explanation that I can find for why the stock is still so well supported is that local investors don't understand it. Institutions own only 3.6% of the firm.
Can't wait for the Q3 results on November 7. Maybe that will be the wakeup call people need.


Mark Laudi