Global investors who seek exposure to the Vietnam stock market often do so via ETFs or Closed End Funds (CEFs) that hold the larger and more liquid companies. Such companies are usually prominent constituents on various Vietnam stock indices such as the VN-Index, FTSE Vietnam Index, MSCI Vietnam Index etc.
In this blog post I shall discuss one such large Vietnam stock, Saigon Beer (HOSE:SAB). I thought might be useful to regularly provide a broad overview of the stocks you might see pop up in fund manager holdings. The purpose is not to provide buy or sell recommendations. However a quick summary of key drivers for future performance will be the aim, and readers can make their own mind up of whether Saigon Beer is a good stock to buy?
WHY SAIGON BEER?
Saigon beer is the major player in the local Vietnam alcoholic beverage market, capturing around 40% market share. It believes it can push this to 50% over time. Heineken is its fiercest competitor in Vietnam with over 30% market share.
Overall it is a very concentrated market, with over 90% of the beer market in the hands of Sabeco, Heineken, Habeco and Carlsberg.
Saigon beer attracted corporate interest from the major beer company in Thailand back in 2017 when ThaiBev acquired a 53% stake. It bought the stake from the Vietnam Ministry of Trade who sold a large part of their stake, yet kept a remaining 36% stake which they still have today.
I covered this topic to some degree when I wrote specifically about Thai Beverage Company in the below link. (a stock listed on the Singapore exchange which I still own).
Saigon beer’s business is relatively simple in respect to it generating its revenues within Vietnam. In terms of alcohol consumption Vietnam are nearly all beer drinkers. (well I have seen reports saying up to 94% or so of alcoholic sales are beer).
Vietnam has a strong beer drinking culture that is very unlikely to go away, and a culture in which the young and upcoming workforce continue to embrace.
Cost of beer is very cheap, I found it noticeably better value than when I spent a lot of time in Thailand. Perhaps that is where ThaiBev saw the opportunities (margin expansion over time), along with general tailwinds of rising middle class.
Saigon Beer history.
The history goes back a long way! In 1875 a Frenchman in Saigon named Mr Victor Larue setup a small beer workshop. From then it slowly developed into a complete brewery and in 1927 it was officially incorporated in the French BGI system.
In 1977 it was renamed Saigon Beer Brewery, later in 1993 it became Saigon Beer Company. In 2003 it became known as Sabeco as it is still today, at this time it was established with numerous subsidiaries. It was listed on the Ho Chi Minh Stock Exchange in 2016.
Saigon Beer product range.
It has a relatively simple product mix with a small number of long standing well know beer brands in Vietnam. In 2020 they decided to add a few new ones (noting its 145th anniversary – see history above), as a good excuse to launch them.
Source: Sabeco 2020 Annual Report
Saigon Beer revenues pre / post covid.
Let’s ignore the share price movements for a moment, acknowledging that in 2017 the stock was highly priced.
If we focus more on the operational charts below, the company had some ok momentum prior to covid. Although sales were understandably substantially hit in 2020, profit was impacted to a far lesser extent.
Source: Sabeco 2020 Annual Report
FACTORS TO DECIDE ON WILL SAIGON BEER SHARES BOUNCE BACK IN 2022?
Improvements in operational efficiency / the SABECO 4.0 project– Potential exists for Saigon Beer to now consolidate and grow its huge market share, and invest for efficiency improvements to strengthen its already large MOAT.
This dynamic is often why global investors pay up highly for large brewing companies across the world. They believe they are incredibly hard to compete against, so as a shareholder you can enjoy the compounding of very reliable profits and margins over long time periods.
Below represents the plan and longer-term vison Saigon Beer has to execute on this.
Source: Sabeco 2020 Annual Report
Brand development – The small set of well-established local brands I referred to earlier could represent an opportunity to expand on, which can assist them growing an already high market share further.
In 2020 we saw them launch a few new brands to time with their 145th anniversary. I personally am a fan of the new Saigon Chill brand!
P/E multiples investors willing to pay for quality – Strong market share, return on capital, MOAT, etc and past performance make it appropriate to view this company as high quality. In the past it has traded near P/E multiples of 30 times. Investors often also bid up big global brewing giants to similar multiples for extended periods. They can be very hard to compete against. Think of how they heavily advertise their brands to you and how they have to setup massive supply and distribution networks.
Usually such comparables don’t have some of the macro tailwinds that Saigon Beer might enjoy in Vietnam though.
You could make a case that not a lot has to change too much for a simple re-rating to a higher P/E multiple again. It may just need us moving past the pandemic period to more endemic phase for this to happen.
Corporate activity in terms of its large shareholders – Stock markets hate uncertainty. Perhaps weighing on the share price performance of Saigon Beer in recent times is speculation what might happen with its largest shareholders. Will ThaiBev sell their stake? Will they increase their stake? Or will the Vietnam Ministry of trade sell or buy more of a stake!?
Perhaps any more certainty around this aspect could help the share price of Saigon Beer.
VIETNAM STOCK MARKET VALUATIONS – SAIGON BEER PE RATIO, YIELD ETC.
Saigon Beer PE Ratio – 26 times
Saigon Beer dividend yield – 2.3%
* Source: TIKR data captured on May 24th 2022
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They are a “freemium subscription model”, so there is tons of free information and the full access pro plan you only have to pay for if you later feel comfortable you wish to do so. Note that I may receive a small commission if you join their paid plan, but at no additional cost to you.
SAIGON BEER SIZE IN TERMS OF VIETNAM STOCK INDEX AND COMPONENTS
Saigon Beer at the time of writing is about the 15th largest company of my searches of Vietnam stock list of the largest companies. The market cap in USD is circa $4.4 billion.
IS SAIGON BEER A GOOD UNDERVALUED VIETNAMESE STOCK TO BUY FOR 2022?
I made the point earlier about P/E expansion being possible, which might surprise readers given above I showed a P/E based off 26 times. To provide some clarity around this argument, I would note that logically 2021 and 2022 earnings could be described as depressed still due to the pandemic. If we were to look at analysts estimates for 2023, the P/E would read more like 19 times. Such analyst estimates don’t look stretched, since they are not all that much above what the company achieved some 4 years prior. i.e. the earnings from 2019 prior to the pandemic.
Given that valuation backdrop, I see there is a good chance of Saigon Beer finally turning the corner after years of share price underperformance. It might be a case of short-term pain for long term gain in terms of them investing for the future. I refer to the points I made earlier about their visions and investment in operational efficiency and brand development.
I consider the stock lower risk compared to most other Vietnamese stocks given their quality and scale. It is not a bad way to make perhaps a bet with lower volatility on the future tailwinds of Vietnam such as steady population growth and rising middle class younger consumers. After hopefully a solid bounce in earnings in 2023, looking out there is still potential to achieve double digit earnings type growth for quite some time. Robust margins and still inching up of market share over time seems likely.
Hard to foresee threats in terms of the overall beer drinking culture in Vietnam, or from competitors being able to trouble Saigon Beer’s strong foothold on market share.
Risks I see for the stock more likely centre around inflation in general. Will this affect input costs that weigh on them significantly, and cannot be overcome by various operational improvements they may achieve?
The stock is also sensitive to negative developments around any other new covid strain outbreaks and also global economic growth in general. Yet the company is strong enough to probably cope with such risks better than many others anyway.
OTHER VIETNAM STOCK INDEX COMPONENTS REVIEWS
If you are interested in similar summaries and analysis on other larger Vietnam listed stocks here are some other links to check out.
And should you want a very quick description of the largest 10 companies listed on the Vietnam stock exchange, be sure to visit the below blog post I made last year.
VIETNAM LARGEST 10 COMPANIES ON STOCK MARKET
I summarize the largest Vietnam companies by market cap:
Is Vietnam a good investment?
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