BUY S$5.80 STI : 3,088.42
Price Target : 12-Month S$ 7.20
Reason for Report : Post-POA update
Potential Catalyst: Better operating results and margins; corporate restructuring, M&As
DBSV vs Consensus: Market generally positive on conglomerate structure
• F&N received good response at DBSV POA Conference recently, where it focused on business updates
• We saw strong interest in its F&B segment, where management remains upbeat
• Property headwinds and risks have been priced in
• Diversified revenue base is positive; maintain Buy rating and S$7.20 TP
Strong interest in F&B. F&N management met with over 40 buy-side fund managers/ analysts at our Pulse of Asia conference last week. The focus was on its F&B business, especially its growth initiatives for the medium/ longer term. In the near term, investors were concerned about margins - management hopes to see margins bottom out in 3Q if not 2Q. The Group continues to gear up in response to the termination of its bottling agreement with Coca-Cola in Malaysia on 30 Sep 11, and hopes to make up for the revenue shortfall with other initiatives. We estimate that Coco-Cola contributes c.3% to the Group’s PBIT.
Property policy risks priced in. Not surprisingly, both management and investors largely shared common views of policy headwinds in Singapore’s property sector. However, the group is known to be cautious, and management felt downside in this segment is limited. Most of its land bank costs below S$340 psf. Its strategies and sales targets for China and Australia remain the same.
Maintain Buy, TP S$7.20. We continue to like the Group’s diversified conglomerate structure, and expect its F&B brand franchise to continue to grow even after its bottling agreement with Coca-Cola ends in September. Our target price is based on 15% discount to our RNAV of S$8.43, implying 24% potential upside from current levels.
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