- We maintain our HOLD recommendation on Fraser & Neave
Holdings (F&N), with a slightly lower DCF-based fair value of RM18.00/share
(RM18.10/share previously) post our earnings revision and rolling over of our
base year to FY13F.
- F&N posted a lower net profit of RM239mil for FY12
(YoY: -38%). However, we deem the results to be largely in line with our
expectations as a lower normalised PBIT (YoY: -14%) after stripping out EIs of
RM35mil, was mainly attributable to earnings setbacks stemming from the Thai floods
and smaller property contribution of RM55mil (50% capital gain from PJ land
disposal to JV co). EIs comprise one-off charges in relation to:- 1) Soft
drinks restructuring; 2) Accelerated depreciation; 3) Pulau Indah relocation expenses
and; 4) Coca-Cola business cessation.
- Importantly, F&N’s star performer soft drinks
continued to maintain its growth momentum with a 21% YoY surge in normalised
PBIT. Soft drinks revenue was up 10% on the back of sales volume which grew 12%
despite the absence of the Coca-Cola business. Notwithstanding a muted performance
from F&N’s FruitTree juice range, we see promising prospects on the back of
rising contributions from sales exports, contract packing for Singapore and launch of new products (My Cola &
100Plus Edge).
- As anticipated, dairies Thailand bore the brunt of
flooding which resulted in revenue dropping 21% due to a 200-day interruption
to operations at Rojana, Bangkok. We expect the absence of dairy outsourcing
activities to drive margin recovery, and spur an earnings rebound from 1QFY13F onwards,
especially following a successful market share expansion during the floods. The
stronger foothold should aid F&N’s long-term push into IndoChina countries,
while the launch of “HI Calcium” is aimed at spurring growth within the
Malaysia market.
- Management declared final and special (single tier) dividends
of 23 sen/share and 15 sen/share, respectively, bringing total dividends to 58
sen/share for FY12. Excluding special dividends, this year’s dividend payout ratio
of 77% is close to FY11’s 76%.
- All in, our FY13F-14F EPS have been trimmed by 15%-18% as
our initial sales volume growth assumptions have been too optimistic. Earnings
upside would come from the realisation of F&N’s mixed property development
project with a GDV of RM1.6bil by end-2013. Newflows on potential M&A
involving parent company Fraser & Neave Ltd (FNN Sp Equity, Non-rated)
should also fuel investor interests.
Source: AmeSecurities
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