AM Fraser
Fraser and Neave posted net profit after fair value adjustments and exceptionals rose 6.8% to $8754 mil for the full year, powered by its growing food and beverage division but a blip came from the group's flood-hit dairy factory in Thailand. EPS after fair value adjustments and exceptionals was 62.2 cents. The robust showing came on the back of a 10.1% year-on-year rise in group revenue to $6.27bil. The company has recommended a final dividend of 12 cents per share.
KIMENG - TP $7.22
Maintain BUY with a lower target price of $7.22 (from $7.47) as we ascribe a 10% discount (from 5%) to our SOTP estimate of $8.02. Key catalysts include the potential divestment of non-core businesses, such as printing and publishing, and the expansion of the F&B businesses into new markets.
CLSA - TP S$7.57
F&N set another record year with core net profit of S$621mn for FY11. Its full-year core profit came in 4% above our forecast, hence, in line. Its 4Q core earnings increased by 24%, mainly due to higher contribution from soft drink, printing & publishing and investment properties. However, results were offset by lower contribution from dairies. The strong set of results reaffirms our long-term positive view on F&N. BUY.
PATMI rose 24% in 4Q and set record profit for full year
Fraser & Neave reported a 24% rise in 4Q core net profit to S$177mn, underpinned by a 24% increase in revenue to S$1,911mn. The good set of results was due to improved revenue and margin in soft drinks (PATMI: +53% yoy), investment properties (+18%) and printing & publishing (+178%). On the other hand, dairies segment was affected by the high input cost. This has caused a net loss of S$1.7mn in the segment. For the full year, the group core net profit increased by 6.5% to S$621mn. This is 4% above our forecast of S$597mn, hence, in line. FY11 was another record year for F&N after FY10.
Properties contributed 50% to the group
F&N management has striven to balance its property and F&B businesses over the years. In FY11, F&N met its target with the property business contributed 50% to PBIT and 34% to revenue. This was achieved through lower profit recognition from property development unit, sale of its retail assets to FCT and strong growth in the F&B business.
Balance sheet improved further due to strong cash inflow
The group’s balance sheet remains healthy with an improved net debt-toequity ratio of 0.31x (3QFY11: 0.42x). This was helped by the strong operating cash flow of S$1,150mn in FY11. The strong cash flow mainly came from the recognition of residential presales and stable cash inflow from F&B and investment properties. Based on our estimates, F&N has accumulated unbilled sales of S$1.5bn, which will provide good earnings visibility.
Strong results reaffirm our BUY with S$7.57 target
We reiterate BUY on F&N with a TP of S$7.57, pegged at 15% discount to our SOTP estimate. We believe F&N’s share price will continue to outperform, underpinned by the expansion of its F&B business into new untapped markets in Southeast Asia. Other catalysts include a successful extraction of values from its overseas properties and potential divestment of its P&P unit. The strong set of FY11 results reaffirms our long-term positive view on F&N.
PATMI rose 24% in 4Q and set record profit for full year
Fraser & Neave (F&N) reported a 24% rise in 4QFY11 core net profit to S$177mn, underpinned by a 24% rise in revenue to S$1,911mn. The good set of results was mainly due to improved margin and revenue in soft drinks (Net profit: +53% yoy), investment properties (+18%) and printing & publishing (+178%). On the other hand, dairies segment was again impacted by the high input cost. This has caused a net loss of S$1.7mn in the segment. For the full year, the group net profit increased by 6.5% to S$621mn. This is 4% above our forecast of S$597mn, hence, in line. However, the results were 6.5% below consensus’ S$664mn. FY11 was another record year for F&N after FY10.
F&N has declared a final dividend of S$0.12/share (unchanged from last year). Together with an interim dividend of S$0.06/share (2010: S$0.05/share), the total dividend works out to S$0.18/share for FY11, up from S$0.17/share a year ago. Based on yesterday closing, the dividend is yielding 2.9%.
Margins in dairies still affected by high input costs
High input costs continue to impact the profitability of its dairies unit. The revenue of dairies unit was flat at S$268mn in 4Q, but recorded a net loss of S$2mn. It is noted that whey powder cost has risen by 22% yoy, whereas palm oil cost has gone up by 59% yoy. The inflationary pressure, coupled with the lowering of sugar subsidies in Malaysia were the reasons of the margin compression in dairies. As part of the mitigation plan, F&N has raised selling prices and the rolled out higher value-added products.
In the near term, this segment will also see impact from the recent flooding in Thailand. The group has halted production at its Thailand dairy plant at Ayutthaya. The management believes that it will take at least 3-5 months to restart its operations there after the water recedes. Meanwhile, F&N will step up productions through its Malaysia facilities to minimise business disruption. We understand that the plant is insured for business and asset damages.
Helped by higher earnings from soft drinks and P&P
The overall group results were lifted by higher contribution from its soft drinks unit with net profit surged 53% in 4Q. The unit was backed by a revenue increase of 14% and higher margin of 6.2%. Besides, its printing & publishing (P&P) unit achieved a 178% jump in net profit due to higher volume growth and improvement in margins of the print and education publishing sub-segments.
Its breweries unit has held up well due to volume growth and contribution from newly acquired breweries in Indonesia and New Caledonia last year. Breweries volume grew by 20% in South and South East Asia, 17% in Indochina and 11% in Oceania region. Revenue grew 11% to $459mn in 4Q, whereas net profit was flat (+0.4%) due to slight margin compression of 0.6ppt.
Its property development unit saw a 59% jump in revenue, but only a 1% increase in net profit in 4QFY11. This was due to the recognition of lowermargin developments.
Properties contributed 50% to the group
F&N management has striven to balance its property and F&B businesses over the years. In FY11, F&N met its target with the property business contributed 50% to PBIT and 34% to revenue. This was achieved through lower profit recognition from property development unit, sale of its retail assets to FCT and strong growth in the F&B business.
Earnings visibility underpinned by S$1.5bn unbilled sales
Following strong residential sales in the past one year, and including sales from previous years, we estimate F&N to have accumulated attributable unbilled sales of S$1.5bn (total S$2.3bn if including 100% of the JVs). The proceeds will be recognised as construction works in progress. Some of the projects that have yet to be substantially recognised but are largely sold are Esparina Residences (99% sold, 13% completed), Waterfront Gold (99%, 13%), Waterfront Isle (85%, 6%), Eight Courtyards (79%, 4%), 8@Woodleigh (100%, 61%) and Seastrand (58%, 2%). The construction of these developments will be spread out until 2014. Hence, earnings visibility is lifted in the next two to three years.
Balance sheet improved further due to strong cash inflow
The group’s balance sheet remains healthy, with an improved net debt-toequity ratio of 0.31x (3QFY11: 0.42x). It also recorded a strong operating cash flow of S$1,150mn in FY11. The strong cash flow mainly came from the progressive recognition of residential presales and stable inflow from F&B and investment properties. The strong cash flow was also helped by the full recognition of profits following the completion of four residential projects (ie. Waterfront Waves, Martin Place Residences, Soleil@Sinaran and Woodsville 28). We believe the group has a strong financial capacity to gear up when opportunities emerge.
Strong results reaffirm our BUY with S$7.57 target
We reiterate BUY on F&N with a target price of S$7.57, pegged at 15% discount to our sum-of-the-parts (SOTP) estimate of S$8.91/share. We believe F&N’s share price will continue to outperform, underpinned by the expansion of its F&B business into new untapped markets in Southeast Asia. Besides, other catalysts include a successful extraction of values from its overseas properties and potential divestment of its printing & publishing business.
The strong set of FY11 results reaffirm our long-term positive view on F&N as discussed in our recent report – Singapore Strategy ‘Five by Five’ (2 November). We see F&N growing revenue 10% pa in the next five years, reaching S$10bn by FY16. Using the blended-average net margin of 8.6% from the past 10 years, we project the group’s net earnings to reach S$870m. We anticipate the group to be self-funded in the next five years, given the strong cash inflow from the F&B units and its low gearing of 0.3x.
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