International roadshows began in Kuala Lumpur on Tuesday for the Bt6.5 to Bt7 billion ($200 million to $210 million) initial public offering of Carabao Group, Thailand's second-most popular energy drink.
Under the lead management of CIMB and Kasikorn, roadshows will continue in Singapore on Wednesday and Hong Kong on Thursday ahead of pricing and allocations on November 10.
The 250 million share offering was originally structured as a purely domestic deal and investors say the order book was already covered by domestic institutions before the group embarked on international roadshows. According to a term sheet seen by FinanceAsia, foreign investors will now be offered 72 million shares, with domestic institutions also on 72 million shares, while 39.5 million will be issued via a patronage tranche.
The remaining 66.5 million shares will be allocated to retail investors through a public offering, which will run from November 12 to 14. Listing is scheduled for November 21.
The deal has a 60/40 split between primary and secondary shares, with a freefloat representing 25% of the group's enlarged share capital.
At a relative discount
Shares in Carabao are being pitched at between Bt26 and Bt28 each, equating to a price-earnings ratio of 17.3 to 18.7 times forecast 2015 earnings. This places it at a discount to fellow Thai drinks manufacturers Ichitan and Sappe, whose shares have rallied sharply since their respective IPOs earlier this year.
Green tea manufacturer Ichitan listed in mid-April at Bt13 per share but is currently trading at Bt21.5, up 65.3% since listing. At this level, the group is trading on a forward multiple of 20 times earnings.
In late June health drink manufacturer Sappe listed at Bt13.5 per share and has since tripled to trade at Bt42.25. At this level, it is valued on a forward multiple of 25 times earnings.
Other comparables include fruit juice manufacturer Oishi, which is trading at 24 times 2015 earnings and Singapore-listed Thai Beverages, which is a far larger entity and is currently bid at 19.4 times 2015 earnings.
Aside from its attractive valuation, Carabao's IPO is expected to be popular with investors thanks to the improved political outlook in Thailand, the world's largest consumer of energy drinks on a per capita basis.
Carabao, which has a solid brand image in Thailand, was launched in 2002 and has seen strong sales in recent years, with revenues growing in the last three years at a compound annual growth rate of 26.3%.
This has propelled it to the number two spot in the national rankings, with a current market share of 21.3%. Thailand's leading energy drink M-150, which is owned by the unlisted Osotspa group, has a 46% market share.
To some extent, Carabao's recent double-digit growth has benefited from a low base effect but analysts believe there is plenty of growth still left in the company even as the Thai drinks market becomes more competitive.
Carabao and Red Bull lock horns
Part of its success has come at the expense of the granddaddy of energy drinks Red Bull, or Krating Daeng in Thailand, the country where it was founded. But there are a number of key differences between the carbonated international brand, with its distinctive blue and white colour scheme, and the uncarbonated domestic brand, which has a 7% market share and is sold in bottles.
Carabao comes in 150ml bottles or 250ml cans and is named after the country's most famous rock band Carabao, which means buffalo in Tagalog. Its lead singer Aed Carabao was one of the co-founders of the company and is a high-profile sponsor.
He has been described as the "voice of the people", a working class hero as famous locally as John Lennon in the UK or Bruce Springsteen in the US. He is particularly popular among the working class population who form the bedrock of Carabao's sales and use the energy drink as a pick-me-up.
The company says its drink was inspired by the "fighting spirit of the individual" and will empower them to "accomplish personal goals." It will certainly give them a sugar rush while they are doing it, since Carabao contains a third more sugar than a can of coke or Red Bull.
Proceeds from the IPO are being used to pay down debt and to fund the company's overseas expansion. International sales currently account for 20% of revenues and the company is hoping the rock band's popularity across Indochina and South East will spur sales there.
It is also reported to be one of Afghanistan's most popular drinks.
Earlier this year, Carabao launched a second drinks line under the brand name Start. It is targeting sales of five million bottles per month by the end of the year and a 10% share of the electrolyte drinks sector.
Overall revenues amounted to Bt6.8 billion in 2013 and Bt3.7 billion at the end of the first half of 2014. The net profit margin currently stands at 13%.