Fraser and Neave Ltd

CIMB RESEARCH on 18 July 2012

The latest to emerge as the potential buyer for OCBC and Great Eastern Holdings' stake is the TCC Group, parent of Thailand's biggest beer maker, Thai Beverage (ThaiBev).

If so, we see a three-way tussle for F&N's F&B assets to emerge, with premium values set along the way - a positive for F&N shareholders.

We are currently on research blackout.

But assuming 1) 26x PE for APB (about $40 a share) and 2) a 24x PE for F&N, we estimate sum-of-the-parts valuation for F&N to be $9.20-9.30.

OCBC and Great Eastern Holdings have received an undisclosed bid for their combined 18.2 per cent stake in F&N and 7.92 per cent stake in APB.

Media reports suggest that Thailand's TCC Group, which owns 66 per cent of ThaiBev has emerged as the front runner.

The entrance of TCC has its merits given ThaiBev's strong balance sheet at 23 per cent net gearing and a $2.5 billion equity base.

Acquiring OCBC and GE's stakes through ThaiBev will also not trigger a general offer (GO).

The strategic fit appears right for the group.

ThaiBev's beer business is largely domestic (international business makes up about 5 per cent of revenue) and in the mass market segment, while APB thrives in the premium end.

If TCC buys over the shares inplay, we believe a three-way tussle with Kirin (15 per cent stake in F&N) and Heineken (42 per cent stake in APB) for F&N's F&B assets could emerge.

Central to this theme is APB, a company we believe all three parties would want to control.

There could be conflict of interests within the similar businesses, which could limit plans to enter new markets for APB.

But with its current geographical exposure and leadership in the premium segment, the group is extremely profitable, and does not appear to overlap with the three parties. We see a potential three-way tussle as a positive event for F&N shareholders with higher asset values (and F&N share price) continues to be set along the way.

If the sale goes through, we believe the stock could trade towards, and possibly at a premium to, the eventual offer price.

A restructuring of the group remains a structural theme, in our view.

A property spin-off is unlikely in play for now, but could yet drive the stock in the longer term.
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