F&N - DBS Research 2015-11-09: Earnings supported by disposal gains

FRASER AND NEAVE LIMITED F99.SI

F&N - Earnings supported by disposal gains

FY15 headline earnings held up by disposal gains
Dairies was in line, but soft drinks fizzled out on brand investment in new markets and competition
Sitting on net cash of S$865m; focus is on re-investment
Maintain HOLD, TP revised down to S$2.26

FNN’s FY15 attributable profit surged manifold y-o-y to S$633m, but this was due to disposal gains of S$542m from the sale of its 55% stake in Myanmar Brewery Limited (MBL). Excluding this, net profit would have been S$68.7m, a drop from FY14’s core profit of S$85.7m.
Total revenue achieved was S$2.1bn, similar to FY14.
The group’s PBIT declined 11% to S$132m from S$148m (excluding S$21m revaluation gains) in FY14, due to higher expenditure on brand investment, lower soft drinks sales and higher distribution costs.
Final DPS of 3 Scts was proposed, and coupled with 2 Scts interim dividend paid, DPS for FY15 was 5 Scts, similar to FY14.

Revenue and contribution from Dairies improved from higher canned milk volumes and better PBIT margins of 6.1%, from 5.2% a year earlier.
Soft drinks, however, faced challenges with PBIT dropping by 43% y-o-y to S$38m, due to a surge in brand investment costs (S$13m) in new markets, and weaker contribution from Malaysia and Singapore due to competition, unfavourable sales mix and higher costs.

The group ended the year with net cash of S$865m, largely from its disposal of MBL. We believe it is on the prowl for acquisitions to make up for void left by the higher margin beer business represented by its stake in MBL.

We revised our FY16F/17F forecasts down by 6%/5% to account for higher brand investment costs into new markets.
Our sum-of-parts TP is revised down to S$2.26, taking into account lower net cash from MBL’s disposal, net of costs and taxes.

Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2015-11-09

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.26 Down 2.45