Thursday, December 12, 2013

Fraser & Neave : Waiting for dust to settle (CIMB)

Fraser & Neave
Current S$5.72
Target S$7.22
Waiting for dust to settle

The tussle for Myanmar Brewery, potential overhang from the impending share placement and recent spat with bondholders have raised concerns. We believe that the bondholders dispute will be resolved soon, which will turn investors’ attention back to FNN’s embedded property value. Maintain Outperform.

Based on our estimates, FNN’s current share price implies a hefty 45% discount to its property RNAV, which is the largest among the big caps. We adjust our FY14-16 core EPS by -16% to 12% due to changes in sales recognition. As such, out target price, still based on a 20% discount to FNN’s property RNAV, is raised. Under our revised rating structure, our call changes from Outperform to Add.

Demerger roadblocks
The tussle between FNN and its JV partner Myanmar Economic Holdings (MEHL) for control of Myanmar Brewery (MB) has gone into arbitration. In the worst-case scenario that MB is sold to MEHL for the reported price of US$246m, we estimate that FNN’s SOP value will fall by 3%. We have factored this event into our model. Furthermore, there is the recent dispute with certain bondholders over the lower redemption price offered by FNN. The demerger will breach certain covenants in the bonds, which means that FNN needs to obtain bondholder consent to prevent triggering a technical default. While a technical default will not derail the demerger, it does raise governance concerns about FNN’s new owners.

Embedded value waiting to be unlocked
We suspect that FNN is playing hardball and believe that the bondholders issue will be resolved amicably soon. When it is, we think that value investors will then turn their attention to the embedded value of FCL (property arm to be spun off). We believe that FCL’s value is deeply discounted, given FNN’s current share price. We estimate FCL’s RNAV at S$8.67bn, which would rank it as one of the top five developers in Singapore by value. FCL’s value is underpinned by its commercial assets (including FCT and FCOT), hospitality assets (likely to be spun off as a REIT) and unbooked presales of S$3.2bn.

Placement by end-2013
We expect FNN’s owners to sell down at least 2.3% of FNN’s total issued shares by Dec 2013 to comply with SGX listing regulations.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 02/12/13

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