Carabao Group

Carabao Group Plc (CBG) 

 

Investment thesis

We attended CBG’s analyst meeting last week, chaired by Mr.Sathien Setthasit, the group’s chairman and CEO. We maintain our belief.in the firm’s continued ability to grow in the foreseeable future. The sponsorship cost for Chelsea FC as a principle partner will be largely funded by their distributor and thus easily within their 2016-20 marketing and advertising budget. With Chelsea FC as their global marketing partner, leveraged with the newly formed Carabao International distributor, the firm will seek to become more active in international markets—we expect the largest sales expansion from this segment in 2016. Domestically, the firm should be able to continue their resilience despite a tepid economy. The main diver being increased market reach with distribution income from third party products, as a result of successful expansion in their cash van program. We reiterate our BUY rating, with CBG remaining as our beverage top pick.

Chelsea—the global marketing partner

The sponsorship of Chelsea FC as a principle partner alongside Yokohama Tires and Adidas is no one-way street. In turn, Chelsea will be a global marketing partner for the group. The three seasons package during 2016-20 will include logo feature on training jerseys, match tracksuits, manager and staff kit, as well as on home ground chairs and players’ bench; ten minutes field LED screen feature per match; team players to endorse CBG products to their home country; and finally CBG’s right to feature Chelsea FC and their players alongside their products globally. The sponsorship cost of GBP30m will be mostly supported by their US&EU distributor. CBG will be only responsible for GBP11m, which will easily fit within their marketing budget set at 8% of sales (Bt0.9-1.1bn during 2016-20).

An active international front from now on

Apart from Chelsea FC’s sponsorship, CBG have also signed a distribution right with Carabao International, set up by veterans from top management of global energy drink players. The firm will have the right to market and distribute CBG’s products in Europe, North and South America, a market at which they have previously built for other major energy drink players. With Chelsea FC and Carabao International, we are now exceptionally bullish on the international front, and thus revise our 2016-17 international sales up by 32% and 35% to Bt5.3bn and 6.9bn respectively. Understandably MD&A would increase from added sponsorship cost, we have also increased our estimate  by 9% to Bt2.0bn and Bt2,3bn respectively

Distribution champion through cash vans

Despite soft domestic consumer spending, we will observe growth in the firm’s domestic sales this year. Its cash-van program is the key success factor in driving up market penetration for CBG’s energy and electrolyte drinks domestically—Start Plus sales continued to grow a further 42% QoQ for 3Q15. The ongoing cash-van DC expansion (four DCs so far) will continue to support their agents and drive domestic growth at minimal cost. By establishing their own non-cannibalizing distribution network, domestic GM will also improve as a result of higher ASP from the vans. We now estimate a 7% domestic sales growth for 2016 YoY, at Bt6.1bn.