- We re-affirm our HOLD recommendation on Fraser & Neave Holdings (FNH), with an unchanged fair value of RM19.18/share, based on a sum-of-parts valuation, following release of the 1HFY13 results.

- 1HFY13 earnings were in-line with our expectation. Core earnings were registered at RM55mil for 2QFY13, which brought 1HFY13 earnings to RM112mil, accounting for 51% of our estimate, but below consensus at 43%.

- The first interim single-tier dividend of 20 sen/share was declared, constituting 43% of our DPS forecast. Our model assumes a 75%-77% payout ratio, translating into dividend yields of 2.5%-2.8% for FY13F-FY15F.

- At pre-tax level, a 19% YoY growth in profit was achieved on the back of a 19% rise in revenue stemming from:- (1) Full recovery of Dairies Thailand to pre-flood levels (+109% in volume); (2) Stronger domestic volume (+6%) for the soft drinks division driven by Season, Ice Mountain & Red Bull, thanks to the Chinese New Year; and (3) Favourable commodity prices.

- PAT declined 25% YoY, largely caused by a tax incentive in 1HFY12’s result – deferred tax asset recognised for the halal hub at Pulau Indah. Dairies Malaysia experienced a slide of 7% in revenue due to a lower domestic sales volume (-2%) given intense price competition and restructuring of the distribution system.

- The mixed development launch of Section 13, Petaling Jaya (ex-Dairies Malaysia plant) has been delayed to FY14. Marketing activities for Phase 1 is expected to kick-start in either the 1Q or 2Q.

- Potential synergies with TCC Asset, controlled by Charoen, are being explored given the change in shareholding structure. We believe a greater emphasis would be seen between the cross selling of products moving downstream, coupled with a stronger foothold in Southeast Asia via leveraging on each other’s distribution channel.

- We nonetheless are keeping our full-year FY13F-FY15F earnings forecasts and EBITDA margin assumption at 10%, at this juncture. An analyst briefing will be held later this morning. Earnings are expected to grow by 23% in FY13F, driven by resumption of operation at Dairies Thailand and an enlarged portfolio of soft drinks.

- The stock is trading at 30x FY13F’s PE, above its 5-year historical peak of 28x – an 11% premium to Nestle Malaysia Bhd’s (Nesz Mk Equity, Non-rated) 27x consensus’ PE.

Source: AmeSecurities