Wednesday, August 28, 2013

Fraser & Neave : Step-one: price discovery (CIMB)

Fraser & Neave
Current S$5.49
Target S$6.61
Step-one: price discovery

 FNN’s planned demerger and listing of two separate entities appear to be a price discovery exercise for now. While questions remain on the consumer division, it is clear that more is expected to be done to unlock the property value. A hospitality REIT may be a start.

We update our estimates and lower our FY14-15 core EPS by 2-3% to factor in the latest land win at Cecil Street. Our SOP value rises to S$7.73 from S$7.70 with the target price still based on a 20% discount to property RNAV, up from S$6.53 to S$6.61. Maintain Outperform with catalysts from more corporate actions.

What Happened
FNN has announced a demerger of its property entity (FCL) through a proposed listing on SGX. FNN will distribute to shareholders two FCL shares for every one FNN share held via a dividend in specie. The listing of FCL shares is expected in Nov or Dec 2013. FCL will hold all property-related businesses (including the AUM platform) while FNN will hold the remaining F&B and publishing businesses.

What We Think
We believe there are two key objectives that FNN’s shareholders want to achieve in this move: 1) to establish an equitable valuation for the two entities through market price discovery and 2) to establish a platform to grow its property business. While questions remain on the consumer side, it looks clear to us that more corporate actions are expected to unlock the property value. To start, FCL is said to be considering a hospitality REIT, which could comprise its 14 serviced apartments (S$1.69bn) and some of TCC’s 40 hotels across the region. FCL now has S$9bn of property assets across all segments, excluding an AUM platform of S$3.5bn. The prospect of combining this with TCC’s portfolio of 8.1m sq ft of office space, 5.1m sq ft of retail space and over 10.3k hotel keys could make FCL one of the largest listed property companies in South East Asia. Taking in a proportionate 66:34 split, we estimate the current share price of FNN implies a 35% discount to RNAV for FCL (in line with the sector average) backed by S$3.3bn of unbooked presales and a low proforma net gearing of 36%. We think this is attractive. Also we estimate that FNN shares imply a 14% discount to its ex-FCL SOP value.

What You Should Do
FNN remains an Outperform. We will give more updates after the analyst briefing.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 28/08/13

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