PRICE as of 3 Jan 2014 SGD 0.54
PRICE TARGET SGD 0.72
FCL spin-off could be a prelude to restructuring
•On 2 January 2014, the books closed for the subscription for the listing of Fraser Centrepoint Limited (FCL), F&N’s property arm. Each shareholder of Fraser & Neave (F&N) will receive two FCL shares for every one held.
• We reiterate our case for a restructuring. The streamlining of F&N’s business should generate up to THB 8bn in synergy gains, in our view.
• We maintain our forecasts and price target of SGD 0.72, which implies 33% upside. Maintain Outperform.
FCL subscription deadline expired on 2 January 2014 in the dividend in specie (DIS) programme. The DIS will lead to a spin-off of FCL, F&N’s property arm. Each shareholder of F&N will receive two FCL shares. Thai Beverage holds a 29% stake in F&N. The cash equivalent per share for the DIS is SGD 2.01 (SGD 2.9bn divided by 1.44bn shares). On 23 December 2013, F&N’s bondholders agreed to the early redemption terms, which paved the way for the DIS programme.
F&N shareholders will receive a further SGD 607mn in a capital reduction exercise proposed on 26 December 2013. We believe this will bolster Thai Beverages cash reserves by approximately SGD 176mn, leading to lower net gearing of 45.5% in 2014E from 49.3%. The cash infusion may allay rating agencies’ concerns about Thai Bev’s net gearing.
FCL distribution solidifies our restructuring thesis. We see 75% probability of an injection of F&N’s F&B business into Thai Bev in exchange for the latter’s 29% stake in F&N and FCL. We estimate THB 8bn in synergy gains from the injection of F&N’s F&B business into Thai Bev.
Thai unrest should not have a major bearing on Thai Bev’s business. We expect the ongoing protests in Thailand to cause minimal disruption to Thai Bev’s distribution network in Thailand. It should not hinder consumption. Spirits sales volumes rose 8%/14% YoY in 3Q/4Q10 after the protests in 2010. At 14.2x 2013E PER, Thai Bev is trading at a 41% discount to the liquor sector average. We expect Thai Bev’s core spirits business to generate an operating earnings CAGR of 7% in 2014-17E.