Monday, November 25, 2013

F & N - Value uncapped (DBSV)

F & N -
BUY S$5.55
STI: 3,251.78
(Upgrade from HOLD)
Price Target: 12-Month S$6.50 (Prev S$9.52)
Value uncapped

• Upgrade to BUY, as shareholders’ value is unlocked through dividend-in-specie/listing FCL
• Outcome of MBL’s arbitration uncertain, but impact on RNAV is low, at 2.5% in our worst case scenario
• Current market price implies above average 47% RNAV discount, despite FCL’s established position

• TP adjusted to S$6.50. Buy for potential 20% total return upside

Value unlocked
We see FNN unlocking value for shareholders with the proposed dividend-in-specie of its property unit, Frasers Centrepoint Limited (FCL). Shareholders will receive two FCL shares for each FNN share pursuant to this exercise. We believe both entities will be poised for further growth in their respective fields of business.

MBL arbitration outcome is uncertain, but RNAV impact minimal
Its JV partner in Myanmar Brewery Limited (MBL) has issued a notice of arbitration on FNN’s 55% stake. The outcome is unknown at this stage, but we believe in the worst case scenario, FNN will be required to sell its stake at a low price. If this happens, it may impact future F&B profits, but the effect on our current RNAV is low at c.2.5%. On the other spectrum, if FNN is able to buy out its partners’ stake, this could be viewed positively.

Current share price implies steep property discount
Stripping out the estimated value of F&B, we estimate that FCL is trading at a steep 47%/27% discount to RNAV and book value, higher than the property sector’s average of 31% and c.5%. We believe this is unwarranted, given its established position as a property company with S$3.3bn yet-to-be recognised revenue from pre-sold projects, rerating catalysts such as the launch of a hospitality REIT, and potential synergies with the TCC Group.

TP revised to S$6.50, Upgrade to BUY
We revised our TP to S$6.50, after incorporating the recent capital distribution (S$3.28/share). To derive our TP, we value FCL and FNN (ex-FCL), after applying a 30% discount to FCL’s RNAV. Upgrade to BUY for c.20% total return upside. At current price and with capital distribution/dividends, it is still below the S$9.55 General Offer price.

Key risks
Key uncertainties are potential vendor share placements to meet free float requirements, liquidity, overall property market sentiments, and outcome of MBL arbitration.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 21/11/13

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