Using the Discount Cash Flow Valuation helps to find the intrinsic value of the company. Acceleration of net profit margin among its listed competitors: CBG had a higher net profit margin in 2015 than the average of the beverage industry and its listed peer, at 16%.
Business Description
- Distribution Channels
- Products or Services
- Target Customer
- Marketing Policies and Sales Promotions
Currently, CBG produces, sells and manages two types of products, namely: (1) energy drink under the trademark “Carabao Dang”, and (2) electrolyte drinks under the trademark “Start Plus”. Above-the-line marketing: CBG presents the Carabao Dang trademark along with the image of the presenter and brand ambassador, Mr.
Macro-Economic Analysis
- Economy in Thailand
- Working-age population
- Political & Government
- ASEAN economy
- BREXIT
Foreign direct investment in the UK may be significantly reduced as the UK is the financial center of the European Union (EU) and is heavily dependent on capital from the EU. Nevertheless, the medium and long-term effects depend on the terms of the negotiations between the EU and the UK, while the outcomes have implications for EU unity in the future.
Industry Analysis
The purchasing power in Thailand was declined
If the impact of Brexit on the EU weakens the economy, it also indirectly impacts Asian countries, including Thailand, which have closer trade ties with the EU.
United Kingdom energy drinks industry
Competition Analysis
Direct competitor within energy drink market in Thailand Currently, there are four major players in Thailand‟s energy drink market;
Next, the energy drink brand Red bull has the market share behind Carabao Dang, taking approximately 12% market share. However, the energy drink brand M150 has also changed their advertising to emphasize the benefit of vitamin B6 and B12 in its products, after successfully increasing CBG's market share through the use of advertising media, particularly vitamin B12.
Indirect competitor among beverage industry
In addition, CBG used the innovative marketing of advertising vitamin B12 in their energy drink to encourage consumers to try and repeatedly purchase their products. Malee is the second rank in the Premium Juice UHT market share after the Tipco brand.
Investment Summary
- Cash Van Distribution Coverage to over Thailand Region
- CLMV still offers strong growth prospects
- Investment in foreign subsidiary
- Continued benefit from BOI privilege
- Consistent revenue growth and rising up the market share From December 31, 2012, 2013 and 2014, the company had total revenue
- Acceleration of net profit margin among its listed competitors CBG had higher net profit margin than average beverage industry and its
- Potential Loan from Financial Institution and Interest Expense The investment plan in foreign subsidiaries and significant property, plant
Referring to investments in foreign subsidiaries, the overseas investment project was the result of a joint venture with Intercarabao Private Limited (“ICSG”), an unrelated company to the Company and subsidiaries, to invest and hold shares in Intercarabao Limited (“ ICUK”). However, CBG has not classified the indirect investment in ICUK as an investment in a subsidiary because it has no power to control such companies. This investment would be presented as other long-term investment in the consolidated statements of financial position.
The consistent growth in revenue and profit came from the success of the vertically integrated business model, Figure 1.8: Structure of ICUK. Net profit margin acceleration among its listed competitors CBG had higher net profit margin than the beverage industry average and its CBG had higher net profit margin than the beverage industry average and its listed peer during 2015 , which is 16%. However, the average net profit margin of the listed competitor (SAPPE, MALEE and ICHI) was only 10% during 2015 and the net profit margin decreased by 2% in 2014.
CBG was found to manage its various costs effectively better than its listed peers. Potential loan from a financial institution and interest expenses Investment plan in foreign subsidiaries and important real estate, equipment Investment plan in foreign subsidiaries and important real estate, equipment and equipment in 2016 amounted to approximately 3,300 mb, including the investment in ICUK. Therefore, the interest rate could be taken from the previous financial institutional loan (MLR interest rate, 6.25%, minus 1.5% p.a.).
Valuation
Discount Cash Flow Analysis: Free cash flow to Firm (FCFF) Regarding CBG valuation, I used FCFF rather than FCFE method due to
The cost of goods sold margin was calculated based on the gross profit of each domestic and foreign sale multiplied by the sales share of domestic and foreign sales. After obtaining the gross profit margin, then subtract by 1 to get the total cost of goods sold of each annual projection. It meant that the historical cost of goods sold would drop from 67% to 62%, as this was driven by the first production of amber glass in August 2014.
Therefore, when the company planned to build the other amber glass production plant, which would start production in the fourth quarter of 2017, it was assumed that the total cost of goods sold would decline in the same amount to 61% in 2018 and beyond. Inventories were calculated as the cost of goods sold per year divided by 365 and then multiplied by the average of ICP (20 days). Trade and other payables were calculated as the change in inventories added to the cost of goods sold per year, then divided by 365 and multiplied by the average PDP (65 days).
Weight Average cost of capital (WACC) split into two parts; after-tax cost of debt and cost of equity. The cost of shares was calculated using the CAPM method, using the 2.74% 10-year government bond as the risk-free rate. Therefore, the debt-to-equity ratio to weigh the ratios between the cost of debt and the cost of equity was 2.5 and 97.5.
Financial Statement Analysis
- Summary figures from financial statements (Size Analysis)
- Common Size Analysis
- Trend Analysis
- Financial Ratio: Return
- Financial Ratio: Risk
Since it had its IPO at the end of 2014, the company had the ability to repay its loans, so there were no financial charges in 2015. The company had the same cost as an amount of the operation in 2014, then in 2015 the company was able to reduce its cost by 2% due to the production line reduction in the amber glass bottle, as well as the selling, general and administration that CBG was still underlying compared to the peer. It showed that the company still has a gap from these expenses to invest in terms of marketing and administration, especially in terms of wages and salary to expand more manufacturing.
Because CBG has already paid its loans, the company has lower costs and benefits from tax relief. Therefore, when the company was compared in terms of net profit, it got the higher percentage than the industry. The majority of the liabilities and equity came from the equity (86%) and the liabilities portion (14%). This was the new structure after 2013 since the company took the shares public.
To compare with the CAGR sales growth of 6%, the cost appeared to be efficiency as the company could manage its costs by producing its own materials instead of outsourcing. CBG got the CAGR growth of 12% from promoting its product to the market and also on salaries for additional employees to support the future expansion of the company. Solvency risk: At the end of 2015, the debt ratio and the debt ratio were zero, because during 2014 the company repaid all loans to financial institutions, including short-term loans.
Investment Risks and Downside Possibilities
- Change in government’s policies, rules, and regulations
- Volatility of raw material prices and shortage of raw materials The main materials used in manufacturing CBG‟s products are glass
- Financial risks from fluctuation in exchanges rates
- Energy and electrolyte drinks are highly competitive products Due to significantly high competition in the energy drinks market in
- International partners and oversea investment project
Natural gas is an important raw material used in the production of amber glass bottles of APG. Furthermore, if CBG has additional investments in foreign currencies in the future, the Group may be exposed to the risk associated with such exchange rates. Energy and electrolyte drinks are highly competitive products Due to significantly high competition in the energy drink market in Due to significantly high competition in the energy drink market in Thailand, energy drinks and electrolyte drinks are highly competitive products among both existing market players and newcomers.
CBG cannot ensure that all of its importers, agents and local distributors will maintain their business relationship with CBG in the future. The figure above shows the level of risk that the impacts and possibilities that may occur in the future are considered. It will cost raw materials and operation which obviously affects the profit of the company.
It has low possibility of getting price volatility as the company has power to negotiate with suppliers and can order the materials in large quantities. Although CBD has extensive business relationships with importers, but there are possible risks to maintain the relationship in the future. It has such a big impact when the company has problems in the relationship in the future, as the company relies too much on the individual partner per country.
DATA
Company’s Information
- Business Structure
- Major Shareholders and Free-float Table 2.1: Major Shareholders
- Management and Organizational Team
Distribution Channel
Corporate Governance (CG)
The Rights of Shareholders
Equitable Treatment for Shareholders
Roles of Stakeholders
Disclosure and Transparency
Responsibilities of the Board of Directors
- SWOT Analysis
- Five-Force Analysis
- Sales growth projection
- Cost of Goods Sold Projection
- Selling, Administrative, and Depreciation Expense Projection
- Net Working Capital Projection
- Property, plant and equipment & Intangible assets Projection
- Financial Statement Projection
- Terminal Value
- Free Cash Flow to Firm Model
- Free Cash Flow Sensitivity Analysis
As the supplies are more than the demands in the market, so it has high competition. There is a limited consumption per day, no more than two bottles (restriction by the Department of Food and Drugs) and also because of the amount of caffeine, so the volume of the product depends on the population in the market. Since the company has been selling to the mass market, so it needs to produce in high volumes so that CBG can bargain with its suppliers.
However, even the new entrants are Thai companies, it is still difficult to start business as nowadays there is high competition in the market. CBG had a plan to launch the new product of Carabao Carbonated UK in the UK market in the fourth quarter of 2016, so the company invested in the subsidiary ICUK in order to gain competitive advantage in the market. Therefore, the significant change in the gross profit margin of domestic sales would be the same as in the past as the next amber glass manufacturing plant would complete construction and start production in the fourth quarter of 2017, so the gross profit it would be changed to 39% to 45. % in 2017 and 2018, respectively.
He is also concerned about invisible costs or I still think the company is in a good case as being a self-distributor in the European market, especially in the UK, would bode well for the long term. In addition, this is also an opportunity for the company in the future if new product lines appear without energy drinks.
I expect the company to continue to grow in the long term, especially in the international market. Before WACC, the company had heavy investments in the equity part, so there was no doubt that the cost of capital was high.
