Tycoon Sathien Setthasit plans to pour $300 million into helping his energy-drink company Carabao Group Pcl take on Red Bull in China. A recent slide in the firm’s shares signals investors see a tough fight ahead.
The outlay is earmarked for marketing and distribution in the next three years to tap rising Chinese demand for energy beverages, Mr Sathien said in an interview. Mr Sathien is Carabao’s chief executive officer, but is funding the investment via a separate company to avoid pressuring Carabao’s finances.
"China has large growth potential for energy-drink consumption," Mr Sathien, 64, said in his office in Bangkok on Dec 4. "But marketing costs as a newcomer will be massive. We have to make a big promotional splash to be successful."
China offers an energy-drink market that’s set to expand a third to $10.1 billion by 2020, according to researcher Euromonitor International. The challenge for 16-year-old Carabao is how to fight the dominant Red Bull brand in the world’s second-largest economy, as well as established local rivals and recent entrant Monster Beverage Corp.
Carabao has already spent $100 million on marketing this year, according to Mr Sathien, as it strives for international recognition after overtaking T.C. Pharmaceutical Industries Co’s Red Bull in Thailand. Promotional initiatives include sponsorship of Chelsea FC as well as the English Football League's Carabao Cup, with the UK a priority overseas market.
Competition in China also comes from other beverage types, such as coconut water and ready-to-drink tea, said Loris Li, a food and drinks analyst at consultancy Mintel Group Ltd in Shanghai. At the same time, there’s an appetite for increased product options as more Chinese embrace personal fitness, according to Ms Li.
Carabao’s shares surged after listing in 2014, making it one of the Southeast Asian nation’s 50 largest firms by market capitalisation and turning Sathien into a billionaire earlier this year -- but only briefly.
In the past month, the stock slid about a fifth, partly after the company reported a 12% slide in third-quarter net income to 387.7 million baht ($11.9 million) from a year earlier. The drop in the shares stripped Mr Sathien of his billionaire status.
Sales in China appear to be coming up short of earlier guidance and are on course for 150 million cans in 2017 versus a target of 170 million cans, Chaiyatorn Sricharoen, an analyst at Bualuang Securities Pcl, wrote in a Nov 27 note. The company retains long-term potential, Mr Chaiyatorn added.
Mr Sathien’s target is to double sales of the Carabao Daeng drink to 300 million cans in China in 2018. The venture that will make the $300 million outlay has the product’s distribution rights in China. The venture started operations this year and currently has offices in eight major provinces and a staff of more than 800.
China will be a "very tough challenge for Carabao" and such concerns have weighed on the shares recently, said Naree Apisawaittkan, an analyst at Phillip Securities (Thailand) Pcl in Bangkok.
Named after one of Thailand’s most successful rock bands, Carabao sits on a valuation of more than 40 times blended forward 12-month earnings. That’s the second highest among the country’s 50 largest stocks, adding pressure on Mr Sathien to make a success of the planned overseas expansion.