F & N - F&B inching up on its contribution (DBSVickers)

BUY S$5.50

Price Target : S$ 7.20

At a Glance

• 3Q11 in line; 9M net profit (ex. exceptional and fair value) formed 76% of forecasts

• F&B accounts for c.49% of PBIT on contribution from soft drinks and breweries

• Property contributions slowed, but still has S$2.4bn in unrecognized sales to underpin profits over next couple of years

• Maintain Buy and TP of S$7.20

Comment on Results

3Q within expectations. FNN’s 3Q net profit (after exceptionals and fair value) rose by 9% yoy to S$144m, on a topline of S$1,432m (+2% yoy). This formed 76% of our forecasts. PBIT dipped marginally by -4% to S$226.3m with lower contribution from property development, investment properties and dairies, but mitigated by stronger results from breweries and soft drinks. NAV grew by 5% to S$4.60.

F&B accounted for 49% of Group’s PBIT; new F&B CEO. With its strong performance and slower contribution from its properties divisions, F&B accounted for c.49% of the Group’s PBIT (3Q10: 44%). The key performers were soft drinks (S$21.5m, +8%) and breweries (S$83.6m, +13%), but offset partially by a drop in dairies (S$13.6m, -25%) due to higher input costs. Separately, we were not surprised by the retirement of its F&B’s CEO, and there should be little impact on operations at this point in time.

Headwinds in property but could already be in share price; S$2.4bn in unrecognized sales. The Group remains cautious on Singapore property development particularly on policies. It has launched 4 projects this year, and 1,464 units have been sold. It has c.S$2.4bn in unrecognized sales, which will underpin profits over the next couple of years.

Recommendation

Maintain Buy, TP unchanged at S$7.20. We see operations remaining stable and the recent rout in the equities market may present opportunities for accumulation. Current valuation is undemanding at c.35% discount to our RNAV estimate of S$8.43. Despite the recent property measures, we estimate that only <10% of our RNAV estimates are based on unsold properties, and hence relatively unaffected. We continue to like its conglomerate structure, with its F&B and investment properties providing more defensive attributes compared to development properties. Our TP is maintained at S$7.20, 15% discount to our RNAV.