Fraser and Neave

CIMB Research, May 13

H2 2013 core earnings formed 39 per cent of our and consensus's full-year estimate. We deem this as in line given the stronger anticipated H2. We maintain our core EPS estimates and target price on 20 per cent discount to its property RNAV (revalued net asset value). Our pro forma SOP (sum of parts) estimate after the cash distributions is S$7.75. We estimate investors will be getting its property business at an implied discount to RNAV of 43 per cent. Maintain "outperform".

Group revenue in Q2 2013 rose 17 per cent y-o-y, buoyed by a strong F&B (food and beverage) segment. Soft drinks revenue rose 9 per cent y-o-y with key brands' volumes up double-digits (%) y-o-y. Myanmar brewery revenue also rose 33 per cent y-o-y.

Overall, PBIT (profit before interest and tax) from F&B jumped 44 per cent y-o-y. In Thailand, dairies sales recovered to pre-flood levels. In properties, Twin Fountains, its last site in Singapore, was launched recently and is over 2.3x subscribed.

In Australia, the group sold 166 units in H1 2013 with the completion of OCP (One Central Park) and Park Lane (60-80 per cent sold) to underpin stronger property income in H2 2013. F&N still has S$3.4 billion of unbooked presales.

F&N has announced that it will return S$4.73 billion or S$3.28 (29 per cent of SOP) to shareholders in cash via capital reduction. F&N explained this will help it achieve a more efficient capital structure and distribute the gains from the APB (Asia Pacific Breweries) sale.

Its balance sheet will turn from net cash to one with a net gearing of 0.17x while its RNAV is expected to be around S$7.75 after the capital reduction.

The cash distribution will be paid out on or around July 31, 2013.

The decision to repay shareholders should be welcomed by the market.

If its share price falls S$3.28 after the capital reduction, the discount to its property RNAV implied by the share price should remain attractive. The next step is for TCC/Thai Bev to reveal its strategy for F&N.

OUTPERFORM