Business as usual, for now
As expected, management gave little away during the briefing on when and by how much its free float will be restored. Synergies with its Thai shareholders in F&B and property were discussed. These drew some positive guidance. But beyond that, it’s business as usual, for now.
We expect more corporate actions to form the share price catalysts. Meanwhile, we retain our Outperform call with unchanged target price of S$6.61 (still on 20% discount to property RNAV). We estimate the current share price of FNN implies a 34% discount to RNAV for FCL (in line with the sector average),backed by S$3.3bn of unbooked presales and a low proform a net gearing of 36%.
FNN management held a briefing for sell-side analysts on the demerger of its property entity (FCL) via a proposed separate listing on SGX by undertaking a dividend in specie. For FNN (excl.FCL), management plans to go deeper into its ASEAN markets, with Thailand an obvious longer-term target. Some cost savings are expected on the procurement side as a combined group with Thai Bev –a positive. The bulk of the discussion was on FCL about how synergies can be reaped with TCC. Management says that it is studying the possibility of acquiring TCC’s international hotels (excl.Thailand) and sees future development collaboration opportunities in Thailand. With TCC, FCL believes it can be very competitive in that segment. As such, itis likely to be more proactive in the development space. For now, it sees its asset allocation mix as optimum. It is now ready to explore a hospitality REIT, which could come by 1H14.
What We Think
It looks like it is status quo for now with the same assets, mandate and management. But we get the sense that the two new entities are likely to be more aggressive in acquisitions compared to the past. Management says that its Thai shareholders are acquisitive in nature. FNN (ex-FCL),in a net cash position, will be on the look-out for things to buy. For FCL, we believe the prospect of integrating with TCC to form a property behemoth is the long-term driver for the stock. Overall, we expect more corporate activity at the FCL level, including restoring the free float to above 10% before 31 Dec. Management says that a key reason for keeping FCL listed is to be able to tap the equity markets in the future.
What You Should Do
FNN remains an Outperform.
Publish date: 29/08/13