Haad Thip (HTC TB)

Disclaimer: Asian Century Stocks uses information sources believed to be reliable, but their accuracy cannot be guaranteed. The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. You are advised to discuss your investment options with your financial advisers, including whether any investment suits your specific needs. From time to time, I may have positions in the securities covered in the articles on this website. Full disclosure: I do not hold a position in Haad Thip at the time of publishing this article. To reiterate, this post and the below presentation are for informational and educational purposes only － not a recommendation to buy or sell shares.

Haad Thip (HTC TB — US$194 million) is a Coca-Cola bottler responsible for Thailand’s 14 southern provinces. It was mentioned by the Twitter account Nate, who suggested I read through Haad Thip’s annual report. And I’m happy I did.

A bottler works with the Coca-Cola Company in the United States to manufacture and distribute its products. It buys concentrate and then mixes it with water, sweetener, carbon dioxide and other additives. Finally, it fills the drink into bottles sold to retail outlets across Southern Thailand.

Haad Thip is run by Patchara “Dollar” Rattakul, the son of the previous CEO. Before becoming CEO, he spent 10 years as Chief Operating Officer, during which Haad Thip modernized its production equipment and became a lean operation. From what I’ve read, I’ve been impressed by Patchara and consider him a safe pair of hands.

I also think Haad Thip is a high-quality operation. The Thai Coca-Cola market is divided into two and controlled by Thai Namthip in the North and Haad Thip in the South. As such, it’s a virtual monopoly. Indeed, Haad Thip has an 84% carbonated beverage market share for the provinces in which it operates.

While there’s more competition in the non-carbonated beverage area from Sermsuk, Tipco and Malee, Haad Thip also sits on several important brand names, including the Minute Maid brand of orange juice.

It’s a steady grower. Haad Thip’s sales volumes have grown at a 4.4% CAGR over the past nine years. It currently produces 70 million cases per year. On top of this, we should expect steady price increases. For example, in 2022, Haad Thip raised prices by +6.0%, followed by another +1.5% in 2023.

I also think it’s under-appreciated how the Coca-Cola Company, under new CEO James Quincey, has become more agile than in the past. It’s innovating with new flavors and variants, including no-sugar versions of Coke that are becoming increasingly popular. Coca-Cola is now entering the alcoholic beverages area, and Haad Thip is planning to release such beverages in Southern Thailand soon.

On my numbers, Haad Thip trades at around 10x current-year P/E and 9x 2027e P/E. Given the generous 70% dividend payout ratio, expect 7-8% dividend yields in the next few years.

One concern with Haad Thip has to do with sugar taxes. In 2017, Thailand introduced such taxes to combat obesity. The fourth phase of the sugar tax increase will take place on 1 April 2025.

Given the 11 grams of sugar per 100 milliliters of a regular Coca-Cola, the tax will increase from THB 1 to THB 3 per litre (US$3 cents to US$9 cents). These are low numbers but will matter on the margin. A typical Coca-Cola costs THB 20-25 in Thailand.

A more serious question is the future of sweetened carbonated beverages. There’s a perception that we’re moving towards healthier lifestyles. Will Coca-Cola eventually become out of fashion?

I’m personally not worried. Thailand is nowhere near the types of consumption levels seen in the United States or even Europe. And most prefer the taste of the regular version of Coca-Cola.

I also think that Coca-Cola is responding well to the threat. It’s introduced a series of no-sugar versions for those who prefer healthier beverages. While mineral water has become more of a competitor, the taste of Coke simply cannot be beaten.

Click the “Download” button to access the full PowerPoint presentation:

If you don’t have trading access to Thai equities, consider opening an account with Phillip Securities in Singapore or Boom Securities in Hong Kong. You can find my guide on Asian brokerage houses here.

Or you can look at Coca-Cola Bottlers Japan (2579 JP - US$2.8 billion), whose EV/Sales is lower than Haad Thip’s at just 0.53x vs 0.87x. Coca-Cola Bottlers Japan is aiming for 5% margins by 2028. It recently announced plans to acquire 20 million shares, or 11% of shares outstanding. But more on that another time.