On Friday, amidst escalating global trade tensions, Singapore and the European Union (EU) signed the EU-Singapore Free Trade Agreement (FTA). In the agreement, Singapore agreed to axe all tariffs on EU products, including duty-free access for beer and stout imported from the EU, while the EU agreed to remove 84% of tariffs on Singapore products and the remaining 16% over the next 3 to 5 years. The move is expected to improve accessibility to European markets for Singaporean small and medium enterprises (SMEs), and is expected to translate into lower prices for local consumers in both markets.
Closer to home, Singapore-based water-treatment company Hyflux received a $530 million lifeline from SM Investments, a consortium formed by Indonesian conglomerate Salim Group and energy titan Medco Group. Hyflux CEO Olivia Lum said that once this restructuring is successful, Hyflux will no longer attempt to sell any more assets.
Even though the World Resources Institute has ranked Singapore the country most at risk of facing high water stress in 2040, Singapore has long been recognised a global leader in water research. On the other hand, Singapore’s beverage industry has continued to thrive in the background. Coca-Cola, the world’s largest beverage company, committed US$100 million to expand functions such as its concentrate plant and research capabilities till 2020.
As Singapore steps up its “war on diabetes”, sugary drinks have been a key target by health officials. To alleviate the concerns of policymakers, seven major drink manufacturers have pledged to reduce sugar content in all their drinks to 12% or below by 2020. In April, the Ministry of Health went further in supporting a “Drink Water” campaign, to get Singaporeans to drink more plain water instead of sweet drinks during meals.
Despite this, Singapore’s beverage industry remains resilient. According to Statista, Singapore’s non-alcoholic drinks market stands at US$651 million ($896.8 million) , and is projected to grow at a compounded annual growth rate (CAGR) of 2.6% till 2021. The alcoholic drinks market, which stands at US$992 million ($1.36 billion), is expected to do better with a projected CAGR of 3.7%.
On this week’s version of 4 Stocks This Week, we will look at four beverage companies listed on the SGX.
Food Empire Holdings Limited (SGX: F03)
Food Empire Holdings Limited is a global branding and manufacturing company in the food and beverage (F&B) sector. It is best known for its instant beverage products, but also sells frozen convenience food, confectionery and snack food. Food Empire’s flagship brand MacCoffee commands 50% market share in Russia’s instant coffee market.
In August, Food Empire announced that its Q2 revenue increased by 10.4% year-on-year (YOY), to US$69.3 million. This was chiefly driven by strong revenue growth from its Indochina market, which rose 47.3% to US$13.9 million. However, this was dampened by weaker revenue growth of just 0.9% in Russia, Food Empire’s single largest market, which accounts for 38.7% of total revenue. Nevertheless, Food Empire achieved revenue growth in all markets.
Despite this, foreign exchange losses combined with higher selling and distribution expenses outstripped revenue growth, causing Food Empire’s net profit to fall by 29.7% to US$2.3 million.
Looking forward, Food Empire is expected to benefit from rising global demand for instant coffee driven by millennials, which is expected to grow at a CAGR of 5%.
Incidentally, with a 24.73% stake, Salim Group is Food Empire’s largest shareholder. As of August, CEO Sudeep Nair owns a 10.88% stake, while Executive Chairman Tan Wang Cheow and his wife Tan Guek Ming combined have direct and deemed interests over 22.62% of Food Empire.
With a market cap of $280.4 million, Food Empire’s share price closed at $0.525 this week.
Fraser and Neave, Limited (SGX: F99)
Fraser and Neave (F&N) is a company with interests in F&B, publishing and printing.
For the quarter ended 30 June 2018, F&N announced that revenue inched up 0.4% to US$485 million. This was driven by strong performance in its Dairies division, F&N’s largest revenue source, which saw revenue rise by 5.1% to US$290.3 million. However, the Beverages and Printing & Publishing divisions both saw their revenues fall 5.4% and 7.2% respectively.
By territory, F&N experienced revenue growth in its two largest markets Thailand and Malaysia but saw its revenue decline in Singapore. This decline was most significant in its Beverages division, which it attributed to Singapore’s war on diabetes and stiff price competition. Despite this, F&N has benefitted from lower sugar prices this year, thanks to higher production from Thailand, India and the EU. Excluding a one-off gain, F&N’S net profit fell by 12% to $50.3 million.
F&N’s largest shareholders, TCC Assets Limited and InterBev Investment Limited own 59.25% and 28.48% of F&N respectively, signifying their belief in the company’s underlying potential. However, other investors did not react as positively to F&N’s results. YTD, F&N’s share price is down 30.5% YTD.
With a market cap of $2.6 billion, F&N’s share price closed at $1.80 this week.
Thai Beverage Public Company Limited (SGX: Y92)
Thai Beverage (ThaiBev) is a leading beverage company in Southeast Asia based in Thailand. It also owns 252 KFC stores in Thailand, which it acquired at a cost of $470.2 million in December 2017.
In October, ThaiBev announced a major strategic reshuffle to fuel its beer business in ASEAN, which currently amounts to a 23-24% market share. Through rapid expansion of its international operations, which accounts for 40% of sales now, ThaiBev is looking to increase overseas revenue to over 50% of total sales by 2020.
ThaiBev is expected to be a major beneficiary from rising beer consumption in Asia due to rising disposable incomes. Asia’s beer market is projected to grow at a CAGR of 7.3% to US$202.4 billion by 2020.
On the domestic front, profitability for both alcoholic and non-alcoholic beverages has been hurt by higher excise taxes and the introduction of a sugar tax. However, beer sales were propelled by ThaiBev’s its 54% stake in Vietnam’s leading brewer Sabeco, which cost $6.52 billion. This sent ThaiBev’s revenues soaring 34.1% to 60.7 billion baht.
However, net profit fell 61% to 5.9 billion baht ($247.3 million), due to reduced profitability in its alcoholic divisions and greater losses in non-alcoholic divisions.
YTD, ThaiBev shares are down 29.3%. With a market cap of $16.3 billion, ThaiBev’s share price closed at $0.65 this week.
Yeo Hiap Seng Limited (SGX: Y03)
Yeo Hiap Seng (YHS) is a Singaporean food and beverage company.
In October 2017, YHS sold its Shanghai subsidiary for $16.7 million.
In August, YHS reported that its Q2 2018 F&B revenue rose 5.6% YOY to $92.1 million, driven by higher sales in China and Cambodia.
Even though advertising and promotion costs ballooned by 34.4% to $6.9 million, and administrative costs rose by 15.5% to $8.3 million, net profit rose 66.3%, or $3.49 million, to $8.75 million.
As of 30 June 2018, YHS has a net asset value of $660.4 million, which is 13.8% higher than its current market capitalisation. YHS says it plans to continue expanding and rejuvenating its brands through further investments in its F&B businesses.
With a 53.45% stake, Far East Organisation is YHS’s largest shareholder.
YTD, YHS shares are down 18.6%. Over a five-year period, YHS’s share price has fallen over 60%.
With a market cap of $579.9 million, YHS’s share price closed at $1.00 this week.
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