Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: MAYBANK
Fraser & Neave Holdings Bhd
(May 17, RM11.74)
Maintain buy at RM11.68 with higher target price of RM14.60: Following its announced review of the glass division in November 2009, F&N has now proposed the disposal of the division for a total consideration of RM830.84 million. Maintain buy with a raised RM14.60 target price being the sum of 15 times FY12 PER (price-earnings ratio) (forecast low post-Coca-Cola contract loss) and RM1.30 per share in special dividends being 60% of net proceeds from the proposed disposal.
F&N is proposing to sell its glass division to a 50-50 joint venture between a 100% subsidiary of Owens-Illinois Inc and Berli Jucker PCL, which is a unit of the giant Charon Pokphand conglomerate in Thailand. The agreed sale consideration of RM830.8 million is composed of RM709.4 million in cash and the settlement of RM121.4 million in intercompany loans in F&N's favour.
Apart from the requisite simple majority at an EGM, the disposal requires the approval of the Ministry of International Trade and Industry (Miti). This should not be an obstacle, however, as Owens-Illinois is the largest glass packaging manufacturer globally, by sales.
It is possible that F&N could return net proceeds of about RM2.17 per share from the disposal to shareholders, although we are conservatively forecasting only 60% of net proceeds or RM1.30 per share to be paid out in FY11.
We think this disposal will relieve F&N from running an upstream business that passes cost increases only with a six- to nine-month time lag. It will also allow F&N to focus on its core, downstream beverage businesses. Today, its two core beverage divisions have also ceased using glass packaging containers and thus F&N enjoys no direct synergies from operating the glass division.
We raise our forecasts by 15%-17%, taking into account the strong 1HFY10 and the recently announced sale of land in Ampang. Nevertheless, we lower our target PER valuation from 16 times CY11 to 15 times FY12, being the low point of its forecast earnings. ' Maybank IB, May 17
This article appeared in The Edge Financial Daily, May 18, 2010.
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: MAYBANK
Fraser & Neave Holdings Bhd
(May 17, RM11.74)
Maintain buy at RM11.68 with higher target price of RM14.60: Following its announced review of the glass division in November 2009, F&N has now proposed the disposal of the division for a total consideration of RM830.84 million. Maintain buy with a raised RM14.60 target price being the sum of 15 times FY12 PER (price-earnings ratio) (forecast low post-Coca-Cola contract loss) and RM1.30 per share in special dividends being 60% of net proceeds from the proposed disposal.
F&N is proposing to sell its glass division to a 50-50 joint venture between a 100% subsidiary of Owens-Illinois Inc and Berli Jucker PCL, which is a unit of the giant Charon Pokphand conglomerate in Thailand. The agreed sale consideration of RM830.8 million is composed of RM709.4 million in cash and the settlement of RM121.4 million in intercompany loans in F&N's favour.
Apart from the requisite simple majority at an EGM, the disposal requires the approval of the Ministry of International Trade and Industry (Miti). This should not be an obstacle, however, as Owens-Illinois is the largest glass packaging manufacturer globally, by sales.
It is possible that F&N could return net proceeds of about RM2.17 per share from the disposal to shareholders, although we are conservatively forecasting only 60% of net proceeds or RM1.30 per share to be paid out in FY11.
We think this disposal will relieve F&N from running an upstream business that passes cost increases only with a six- to nine-month time lag. It will also allow F&N to focus on its core, downstream beverage businesses. Today, its two core beverage divisions have also ceased using glass packaging containers and thus F&N enjoys no direct synergies from operating the glass division.
We raise our forecasts by 15%-17%, taking into account the strong 1HFY10 and the recently announced sale of land in Ampang. Nevertheless, we lower our target PER valuation from 16 times CY11 to 15 times FY12, being the low point of its forecast earnings. ' Maybank IB, May 17
This article appeared in The Edge Financial Daily, May 18, 2010.
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