Monday, September 2, 2013

Fraser & Neave : Dispute over Myanmar Brewery (CIMB)

Fraser & Neave
Current S$5.72
Target S$6.61
Dispute over Myanmar Brewery

 FNN’s JV partner in Myanmar Brewery has issued a notice of arbitration and given notice to FNN to sell its stake back to them. While management is not able to provide details for confidentiality reasons, it strongly believes that there is no basis for such an action.

In a worst case that FNN’s 55% stake is sold at a lowball price, we estimate that FNN (ex-FCL) is likely to take earnings and valuation hits of c.24% and 14%, respectively. There is no impact on FCL As it is early days yet, we keep our Outperform call with unchanged estimates and SOP-based target price with a 20% discount to its property RNAV with more corporate actions as catalysts.

What Happened
FNN said it received a letter from the lawyers of Myanma Economic Holdings Limited (MEHL), the JV partner in its 55%-stake Myanmar Brewery (MBL), stating its intention of issuing a notice of arbitration for a potential claim on FNN’s stake in MBL. MEHL has given notice to FNN to sell MBL back to MEHL.

What We Think
There are limited details so far on the legitimacy of MEHL’s claims or the financial impact as FNN is unable to comment beyond what has been announced. What it has said is that it believes there is no basis for MEHL’s notice and will contest it vigorously. The details of the joint venture agreement (JVA) with MEHL have always been kept under wraps by FNN for confidentiality reasons. If MEHL is successful in buying back MBL, the financial and valuation impacts will be inflicted at the FNN (ex-FCL) level. We estimate MBL will generate c.S$70m-80m in PBIT for FY13, with 55% of this attributable to FNN. MBL makes up 6.9% of our SOP value for FNN or at S$660m, at the upper end of its Dec 2012 independent valuation range of S$217m-657m. Assuming MEHL succeeds in the claim and acquires MBL for S$217m (low end of independent valuation), we estimate FNN’s SOP value will fall by 4% to S$7.43 and FY14 PBIT down by 10% yoy. At FNN (ex-FCL) level, FY14 PBIT is expected to fall by 24%, with SOP value cut by 14%, essentially wiping out its implied valuation discount after the demerger exercise. There will not be any impact at the FCL level, with its implied valuation discount of 34% still intact.

What You Should Do
FNN will update accordingly on this case. Maintain Outperform for now.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 30/08/13

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高估期间, 卖对, 不卖也对, 买是错的。
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