F & N - DBS Research 2016-02-04: Lion on the prowl

 F & N - DBS Research 2016-02-04: Lion on the prowl F&N FRASER AND NEAVE LIMITED F99.SI 

F&N FRASER AND NEAVE LIMITED - Lion on the prowl 

 1Q16 within expectations 
 Strong Dairies PBIT offsets weaker soft drinks 
 Beefs up balance sheet for acquisitions 
Maintain HOLD, TP: S$2.20 

Maintain HOLD, TP revised to S$2.20. 

  • We maintain our HOLD recommendation for FNN with a sum-of-parts based TP of S$2.20. 
  • While valuations look stretched at over 30x FY16F PE, its ex-cash PE stands at c.23x. 1Q16 within expectations. 
  • FNN’s net profit dropped 29% y-o-y to S$25.5m, mainly due to the disposal of its 55% stake in Myanmar Brewery Limited. 
  • Excluding the discontinued operations, net profit growth would have been 34%, even though revenue fell by 11% y-o-y to S$488.7m. 
  • The stronger performance arose from a surge in Dairies PBIT margins (due to lower input costs and improved distribution) and a reversal in performance from Printing and Publishing division. 
  • The strong performance was partially offset by weaker Beverages contribution, largely impacted by softer sentiment, increased competition and brand investment. 

Flushed with cash; lion on the prowl. 

  • FNN is currently sitting on a net cash position, which we estimate will reach S$1bn by end FY16F. There have been announcements by management that it is keen to explore options; according to reports, the most recent was that it is in the final round of the auction for Grolsch & Peroni brands (currently owned by SAB). 
  • Earlier, it was also reported that FNN is keen to increase its stake in Vinamilk. 
  • Based on our initial estimates, FNN would be able to embark on these acquisitions, but funding would be via a mix of debt and equity, coupled with its current internal resources. 


  • Our sum-of-parts target price of S$2.20 is derived from the market values of its listed entities, investments and estimated net cash. 

Key Risks to Our View: 

  • Our neutral view is premised on FNN’s net cash position and ability to deploy this for accretive acquisitions and/or special dividends. 
  • Upside/ downside risks could arise from acquisitions deemed accretive/ dilutive to existing shareholders.

Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-02-04
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.20 Down 2.26