DBS Vickers 2015-08-11: Frasers and Neave Limited F&N - 3Q15 Results; Adieu to MBL. Maintain HOLD.


Adieu to MBL 

  • Maintain HOLD, TP revised to S$2.45 with sale of MBL to be completed by end-August at US$560m. 
  • Recent share price decline reflects loss of a profit stream. 
  • 3Q15 within expectations; revised FY16F/17F forecasts to reflect loss of MBL’s contribution. 
  • Project FY15F net cash at S$1.2bn post completion of MBL’s sale; deployment of cash a key focus going forward. 

Maintain HOLD, TP revised to S$2.45. 

  • We maintain our HOLD recommendation with a revised sum-of-parts TP of S$2.45 to reflect a lower valuation for Myanmar Brewery Limited (MBL). 
  • The disposal of its 55% stake in MBL is expected to be completed by 20 August 2015 at US$560m (S$777m). 
  • This is about 35% lower than our original estimates of S$1.2bn, though we understand that the valuation is with reference to early 2013, given the completion of the General Offer for FNN. 

Revised core profit forecasts by 6%/ 39%/ 43%. 

  • We have raised our FY15F forecasts to account for the gain from MBL’s disposal. 
  • However, FY15F/ 16F/ 17F core profits are revised down by 6%/ 39%/ 43% to account for the loss of brewery profit stream, mitigated partially by higher interest income. 

3Q15 results within expectations. 

  • There were no major surprises in its 3Q15 results. 
  • Core net profit at S$40m was 9% lower y-o-y due to lower contributions from its Beverage and Printing and Publishing divisions. 
  • Revenue ended up by 4% at S$645m. 
  • The lower Beverage contribution was due to weaker Beer performance arising from a weaker exchange rate, higher taxes and operating costs due to its expanded operations. 

Flushed with cash again; deployment a key. 

  • We project that FNN’s balance sheet will once again be flushed with cash to the tune of c.S$1.18bn by end-FY15F. 
  • We do expect management to deploy cash to “crawl back” at least the profits “lost” from the disposal of MBL. 
  • As per our earlier report, we noted a couple of scenarios – investment in Vietnam’s SABECO, re-entry into MBL via a new brewery licence, and/or return of cash. 
  • In our view, its strong balance sheet and the potential cash deployment to enhance shareholder value could provide support to share price.

Andy SIM CFA | http://www.dbsvickers.com/ DBS Vickers Securities 2015-08-11
HOLD Maintain HOLD 2.45 Down 2.74