Tuesday, July 23, 2013

Fraser & Neave : SOP value after capital reduction (CIMB)

Fraser & Neave
Current S$5.63
Target S$6.53
SOP value after capital reduction

 FNN shares have commenced “ex” trading. We believe that more clarity from TCC/Thai Bev on its plans to 1) restructure FNN’s F&B and property businesses and 2) restore the stock’s public float will be the key milestones to watch for and could catalyse the stock.

We slash our SOP estimates from S$10.94 to S$7.60,largely to account for the capital reduction. Our FY14-15 core EPS numbers are cut by 3-6%. Thus, our target price (still based on a 20% discount to its property RNAV) is now lower. We estimate that investors will be getting its property business at an implied discount to RNAV of 37% –among the widest in the sector. Maintain Outperform.

What Happened
FNN’s shares have commenced “ex” trading, following the proposed cash distribution of S$3.28 via capital reduction. Book closure date will take place on 24 Jul 13 at 5pm, with the expected payment date on or about 31 Jul 13.

What We Think
In our view, the decision to repay shareholders is the first of many corporate actions expected of the group. On 28 Jun 13, FNN announced that it will carry out a strategic review of the group, which may involve a break-up of the current conglomerate structure. Media reports also suggest that its controlling shareholder, Charoen Sirivadhanabhakdi, may be spinning off FNN’s hospitality assets into a REIT, along with assets under his TCC group. TCC/Thai Bev has yet to reveal its strategy for FNN. The final deadline to restore FNN’s free float to 10% or above has been extended to 31 Dec 13, and we expect TCC/Thai Bev to finalise its intentions in the next few months. Overall, we believe that there is a huge potential for the stock’s valuation gap to narrow via more corporate restructuring moves. TCC Land owns a large portfolio of investment properties in the region (e.g. the largest owner of Marriot-branded hotels in Asia Pacific). FNN, which currently has two REITs in place and over S$1.4bn worth of serviced apartments, should be TCC’s ideal property vehicle for pursuing growth. At current levels, we estimate that investors of FNN will be getting its property business at an implied RNAV discount of 37%, backed by a low FY13Fnet gearing of 12%.

What You Should Do
Maintain Outperform with more corporate actions expected to act as share price catalysts.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 23/07/13

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