- We re-affirm our HOLD call on Fraser & Neave Holdings
(FNH), with a higher fair value of RM19.18/share (vs. RM18.00/share previously)
based on a sum-of-parts valuation, as we have incorporated earnings contributions
from the property division starting FY15F.
- Since its separation with Coca-Cola over a year ago, the
group has enlarged its portfolio of products, with myCola and 100PLUS Edge recently
launched in November 2012. Given the underperformance of fruit tree juices, we believe
management could potentially be exploring other strategies to lift earnings,
i.e. ramping up the popular products such as the Asian still drinks (Seasons)
or isotonic. A stronger 1Q and 2Q is anticipated, underpinned by the festive
season.
- With the relocation of Diaries Malaysia to Pulau Indah,
the current production capacity has increased by 20%. The boost in capacity
will alleviate the current supply constraint in the local market and support an
increased footprint in the export market (FY12: +>100% in volume). The
volume growth in Diaries Thailand is expected to revert to double digit as it
was before the Thai flood misfortune (FY12: -22% in volume) and continue to
build presence in IndoChina.
- The relocation of Diaries Malaysia has paved the way for a
mixed property development project on its Section 13 land towards unlocking
value. GDV is estimated at RM1.6bil. It is planned for launch by 2HCY13.
- Earnings are projected to rise by 24% to RM217mil in
FY13F, mainly to be driven by increased capacity of Dairies Malaysia,
full-scale operations at its Rojana plant, and its enlarged beverage portfolio.
Thereafter, earnings are projected to rise by 6% and 5% for FY14F and FY15F,
respectively. The projected dividend yield stands at 2.5% and 2.6%, for FY13F
and FY14F, respectively.
- Thai billionaire Charoen,
who owns a combined 34.7% stake in F&N Singapore (FNN SP Equity,
Non-rated) through Thai Beverage PCL and
TCC Assets Ltd, has extended his US$7.2bil (RM21.8bil) or S$8.88/share offer
until 10 January to increase that to over 50% of FNN. Meanwhile, a consortium led by Overseas
Union Enterprise Ltd (OUE), a Singapore property company controlled by
Indonesia’s Lippo Group, has made a S$13.1bil (RM32.5bil) or S$9.08/share
counter-bid (2.25% higher than Charoen’s) for FNN in November last year. OUE is
supported by Kirin Holdings, which is FNN’s second largest shareholder with a 14.8% stake.
Simultaneously, Kirin has offered to buy FNN’s F&B business for S$2.7bil,
should the bid succeed.
- Regardless of the competing bids, both Charoen and OUE are
in the beverage business. Given the commonality, any resolution of the take-over
will see a greater emphasis on FNH soft drinks division. Thus, we may see
cross-selling of products moving downstream.
- The stock is trading at a PE of 31x for FY13F, slightly
above its 5-year peak of 28x. Valuation is also near parity with Nestle
Malaysia Bhd’s (Nesz Mk Equity, Non-rated) 30x. Newsflow involving the
potential M&A of the parent company may influence share price performance
in the near and medium term.
Source: AmeSecurities
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