Yeo Hiap Seng

CIMB Research, Dec 11

WE think that there is a possibility that Far East Organization, Yeo Hiap Seng's (YHS) major shareholder, will privatise the company to facilitate its sale to a strategic buyer. The other alternative is to maintain the status quo and reallocate resources to develop the F&B brands.

We think that there is significant untapped potential in YHS's beverage brands, given that its sales growth and profitability trail F&N's despite their similar brand heritage and access to consumers.

Both YHS and F&N dominate the beverage sectors in Singapore and Malaysia, with brand histories that began before the founding of modern Singapore.

Unsurprisingly, their products occupy the best shelf spaces today. However, YHS's market share is now less than half of F&N's, although it was on a par in the early 2000s. Yeo's F&B business is operating at close to breakeven levels in terms of operating profit.

YHS's property development arm contributes the lion's share of group profit today and not its well-known F&B brands. Far East Organization, Singapore's largest private developer, won control of YHS in the mid-1990s.

We believe that its sole focus was to develop the prime piece of land that YHS's factories occupied.

Today, that piece of land is fully developed and the last of YHS's residential properties were sold in Q3 2013.

YHS is on the cusp of becoming a pure F&B player again, pushing Far East Organization to make a strategic decision on its majority 84 per cent stake.

We think that YHS's current share price does attribute value to the Yeo's brand but it does not reflect the brand's full potential. We think that it is a possibility that Far East Organization would buy the remaining 16 per cent stake and negotiate a private sale to a strategic buyer.

Alternatively, Far East Organization could also maintain the status quo and choose to unlock YHS's earnings potential on its own.

UNRATED