CIMB Research 2015-07-23: Frasers & Neave Limited - MBL valuation does little to help. Maintain REDUCE.

MBL valuation does little to help 

  • F&N announced it has received the independent valuation report of Myanmar Brewery (MBL), assessing the fair value of their 55%-stake at US$560m. 
  • Although this is more than double the original offer of US$246m, we still deem it far below what MBL would be worth in the open market. 
  • A sale of its crown jewel at this price would be negative for valuations of F&N. 
  • Our SOP-based target price remains at S$2.58, but has downside risks. 
  • Maintain Reduce. 

What Happened 

  • F&N issued a statement last night that said an independent valuer assessed its 55% stake in Myanmar Brewery (MBL) as being worth US$560m (S$763m). 

What We Think 

  • Our current target price for F&N (25x FY16 P/E, peer valuation) values its stake in MBL at S$1,548m so while the independent valuation is more than double the original low-ball valuation offered by MEHL, it is still only valuing the beer business at about 12.3x FY15 P/E, i.e. very cheap. 
  • F&N got a better deal but it certainly did not get a good deal. 
  • Clearly, the earnings taken for the valuations were the beer earnings some years ago, when beer had not done as well yet. 
  • We estimate that the price tag values MBL at 12.3x FY15 P/E. 

What You Should Do 

  • F&N’s share price has de-rated in the past few months as the overhang of a sale of their crown jewel, at marked-down price, was a real risk. 
  • We maintain our Reduce rating on F&N, pending the actual sale of MBL at the independent valuer’s price. 
  • Assuming F&N eventually sells out its stake in MBL for S$763m, our sum-of-parts target price would fall to S$2.04. 

(Kenneth NG, CFA; Jonathan SEOW)

Source: http://research.itradecimb.com/