Fraser & Neave - Looking to raise its stake in Vinamilk
- F&N announced earlier this week that its two wholly owned subsidiaries, F&N Dairy Investments and F&N Bev Manufacturing, have participated in the competitive bid process to each acquire 39.2 million Vinamilk shares or 2.7% in the issued share capital of Vinamilk from the Vietnamese Government. The sale process will end on December 21, 2016.
- F&N currently holds a 10.95% stake in Vinamilk worth SGD1.4bn, and should it be successful in its bid for the additional 5.4% stake in Vinamilk costing another SGD700m, it would have raised its investment in Vinamilk to over SGD2bn. Vinamilk is Ho Chi Minh Stock Exchange's largest company by market capitalisation and it is also the largest dairy company in Vietnam and one of the fastest growing companies due to its strong distribution network and rising consumption of dairy products in the country.
- The proposed acquisition of additional stock in Vinamilk is in line with F&N's to grow back into a regional F&B powerhouse after earlier selling its stakes in brewers Asia Pacific Breweries and Myanmar Brewery due to the takeover of F&N by TCC/Thai Bev.
- Left with a war chest of SGD700m available for acquisitions in the F&B space, Vinamilk is the first 'elephant' targeted by F&N. We expect the company to remain on the lookout for acquisition opportunities in the region to complement its strong position in the diary and soft drinks in Singapore, Malaysia and Thailand.
- Our Sum of Parts valuation of F&N, taking its account its 56% stake in F&N Berhad, its publishing and printing business, the value of its 11% stake in Vinamilk and its cash holdings, worked out to SGD2.70 per share. We have a TP of SGD2.43 for the stock based on a 10% holding company discount.
- At current price of SGD2.11, the stock offers an upside of 15% and we recommend a BUY rating on the stock.