- We re-affirm our HOLD recommendation on Fraser and Neave
Holdings (FNH), with an unchanged fair value of RM19.18/share, based on a
sum-of-parts valuation.
- The long running takeover battle between Thai tycoon,
Charoen and property developer, Overseas Union Enterprise (OUE) for Fraser and
Neave Singapore (FNN Sp Equity, Non-rated) had finally ended. Charoen is the
winner after OUE-led consortium pulled out given that OUE-led consortium would
not raise its bid of $9.08/share to meet Charoen's revised $9.55/share
offer.
- Presently, Charoen’s shareholding have further upped to
44.9% through combined holdings from Thai Beverage PCL and TCC assets Ltd.
Charoen needs another 5.1% by February 4 for his offer to hit 50% and become
unconditional. FNN, in turn, has a 56% stake in FNH. As for Kirin Holding’s of
14.8% in FNN, Kirin has an option to either exit FNN or renew talks with
Charoen for a strategic partnership to tap on the South East Asia food and
beverage business. Nonetheless, Kirin’s next move has yet to be decided.
- This exercise is anticipated to complete between
end-February to mid- March. Business for FNH will be as usual for now as any
impact is unlikely to be seen until the exercise completes. Meanwhile, Charoen
is borrowing to fund the remaining acquisition. We will not be surprise if
Chareon votes in favour of a distribution of special dividend in due course.
This is underpinned by FNN’s cash pile of S$4.1bil as of FY12 due to the recent
sale of Asia Pacific Breweries.
- Nevertheless, this is bound to boost synergies between
both companies. Underpinned by the commonality of both parties’ business, we
see greater emphasis on FNH soft drinks division with cross-selling of products
moving downstream and cementing its position in South East Asia. In addition, both parties will be able to
leverage on each other’s distribution channel.
- Given Chareon’s conglomerate business, we believe FNN
business will be kept as it is. Hence, there is unlikely to be any change to
FNH. That said, we see Thai Beverage transforming into a huge regional player
as bulk of Thai Beverage earnings comes from the spirit business in Thailand.
More importantly, significant exposure of FNN’s property division complements
well with Chareon’s conglomerate business.
- The stock is trading at a PE of 31x for FY13F, slightly
above its 5-year peak of 28x. Valuation is near parity with Nestle Malaysia
Bhd’s (Nesz Mk Equity, Non-rated) 30x.
Source: AmeSecurities
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