Thai Billionaires vs Korean Chaebols: the Battle for Vietnamese Consumers

　Given the recent massive USD 4.8 billion acquisition of 54% of Saigon Beer Alcohol Beverage Corporation (SABECO) by the Thai billionaire Charoen Sirivadhanabhakdi, the Vietnam’s consumer staples sector is proving to be highly attractive targets for Asian conglomerates, especially those from Thailand and South Korea.

　At 48x price to earnings ratio, SABECO was valued way above the world’s top 30 (2017 revenue) alcoholic beverage players’ average price to earnings ratio of ~33x in 2017 (SPEEDA). Furthermore, the largest dairy product manufacturer in Vietnam – Vinamilk – was valued at a price to earnings ratio of 32.8x in December 2017 as its share price climbed 55% in 2017. These companies provide significant advantage moats in Vietnam consumer market with their dominant market shares (SABECO: 40%, Vinamilk: 50%).

　Contrary to Thai billionaires’ aggressive acquisitions of Vietnam leading consumer product players, Korean chaebols such as CJ Corporation and Lotte bring in their well-known brands and acquire small but critical local companies to optimise their networks. Using their strong and recognisable brands, these conglomerates aim to build leading market positions through strong value chain integration from manufacturing to retailing.

　However, with few worthy local players left to be acquired, even minor companies might see their valuations pushed higher given the growing interests from international investors. This trend would likely drive the Vietnam consumer goods market to be even more competitive in near terms.

　Thai Billionaires’ Long Standing Huge Appetite for Vietnam’s Consumer Brands

　1. Charoen Sirivadhanabhakdi

　Thai Beverage (ThaiBev), Thailand’s largest beverage producer was founded by Charoen Sirivadhanabhakdi in 2003. The conglomerate also controls the Singapore listed Fraser & Neave beverage giant. Prior to the acquisition of a 54% stake in Vietnam’s largest brewer SABECO, Charoen Sirivadhanabhakdi already owned a wide range of businesses in the country from retail properties, hotels, dairy producers to beverage container manufacturers.

　With the acquisition of SABECO, ThaiBev will enjoy the company’s 40% market share position in the Vietnam’s alcoholic beverage market as well as direct access to a fast growing market of 95 million consumers for its large portfolio of beverage brands. Through the distribution network of Phu Thai and prime retail locations of Metro and B’s Marts, ThaiBev will be able to reach major customer bases across the country with immediate effect.

Source: Compiled by Uzabase based on various materials

Note: *Total invested value over several acquisition rounds

　2. Santi Bhirombhakdi

　Singha Corporation, ThaiBev’s main rival in the Thai beer market, also acquired significant stakes in one of the largest consumer product conglomerates in Vietnam, Masan Consumer Holdings. Via its subsidiary, Singha Asia Holdings, Singha Corporation acquired 25% of Masan Consumer Holdings (USD 1.05 billion) and 33% of its brewery unit: Masan Brewery (USD 50.0 million) for a total investment of USD 1.1 billion.

　Masan Consumer Holdings is the parent of various popular food and beverage brands in Vietnam ranging from condiments, instant noodles, coffee, to mineral water.

　3. Tos Chirathivat

　Central Group, under the Chirathivat family, also made large acquisitions in the Vietnamese consumer market in recent years, particularly retail businesses. The leading Thai retail conglomerate acquired Big C Supermarket in a deal worth USD 1.1 billion in 2016, after defeating a rival bid by Berli Jucker (a conglomerate owned by Charoen Sirivadhanabhakdi). This followed the billionaire’s acquisition of 49% of the then number one electronics retailer in Vietnam – Nguyen Kim Trading in 2013. Together with Nguyen Kim, Central Group also acquired Zalora Vietnam from Rocket Internet in 2016. The e-commerce business was then renamed Robins.

　Besides these acquisitions, Central Group also introduced and operates several of its own retailing brands such as Robins Department Stores, B2S Stationaries, LookKool (household goods), Supersports (sporting goods), and Delala Fashion.

　4. Charoen Pokphand’s 30 Year Presence in Vietnam

　Contrary to the headline acquisitions of other Thai billionaires, the Chearavanont brothers – owners of Thailand’s largest agricultural conglomerate Charoen Pokphand Group (C.P Group) started their investments in Vietnam in 1988. C.P Vietnam Corporation has grown organically to become one of the largest integrated agricultural business in Vietnam ranging from breeding stocks, feed production, livestock farming to food processing and retails.

　C.P Vietnam Corporation’s 2016 revenue at VND 50.3 trillion (USD 2.2 billion) dwarfed closest competitors such as DABACO (VND 6.3 trillion) and Cargill Vietnam (VND 16.5 trillion). Although the company’s major market share in feed products is under threat by both local and international competitors, C.P Vietnam’s highly integrated agricultural and food businesses ensure the company’s long term competitive advantage in the market.

Source: Based on C.P Food (Thailand) Annual Report 2017

　Korean Chaebols’ Formidable Positions in Vietnam Consumer Goods

　1. CJ Corporation

　CJ Corporation, the leading food, lifestyle, consumer goods conglomerate from South Korea, invests heavily in a wide range of consumer businesses in Vietnam from food ingredients, logistics, bakery to movies and biotechnology. CJ Vietnam recently acquired a range of local food processing companies in 2016 and 2017.

　Similar to C.P Vietnam Corporation’s integrated agriculture and food business strategy, CJ Corporation established several of its units in Vietnam ranging from logistics (CJ IMC, Korea Express), feed and veterinary products (CJ Feed Ingredients, Cheil Jedang Bio, CJ Vina Agri) to food service and retail (Tous Les Jours bakery, CJ Food Bibigo, CJ Freshway).

　2. Lotte

　Lotte is one of the largest consumer goods retailing conglomerates in South Korea. Unlike CJ Corporation, Lotte focuses in retailing in Vietnam via its network of 13 major shopping centres – Lotte Marts across all large urban centres in Vietnam. Lotte Vietnam Shopping – the operating unit of Lotte Marts recorded revenue growth at a 90.2% CAGR to VND 5,137 billion in 2016 from VND 80 billion in 2008. Lotte Marts are in direct competition with Thai-owned Big C supermarkets and MM Mega Market (formerly Metro Cash and Carry) and local supermarket chain Co-op Marts.

　Beside supermarkets, Lotte also invests in other consumer services such as cinema (Lotte Cinema), fast food chain (Lotteria) and e-commerce (Lotte E-commerce).

　Future Acquisitions to Push Valuations Higher due to Increasing Competition for Remaining Prized Assets

　With the massive bid of USD 4.8 billion for 54% stakes in SABECO, ThaiBev under Charoen Sirivadhanabhakdi signalled to other bidders that the company does not shy away from paying hefty premiums (price to earnings ratio of 48x vs average price to earnings ratio of 33x of the world’s top 30 alcoholic beverage players by revenue) to acquire advantageous market positions ahead of several leading international conglomerate bidders such as Asahi (JPN), Anheuser-Busch InBev (BEL), Heineken International (NLD) and others.

　Similarly, the largest dairy product manufacturer in Vietnam – Vinamilk – was valued at a price to earnings ratio of 32.8x in December 2017 as its share price climbed 55% in 2017. So far, all rounds of divestment of Vinamilk shares by the Government were oversubscribed with heavy presence of regional and global investors.

　With limited remaining worthy local brands to be acquired, valuations would likely trend towards higher premiums as foreign investors, especially Thai and South Korean conglomerates, compete for a piece of the fast growing consumer market.