- 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.

- Pursuant to the recent takeover of F&N Limited, Singapore (56% stake in FNH) by the TCC Group of Companies, FNH’s wholly owned subsidiary, F&N Beverages Marketing Sdn Bhd (F&NBM) had just entered into an agreement with Oishi Trading Co Ltd of Thailand.

- More importantly, FNH is appointed as the exclusive distributor in Malaysia to distribute, market and sell Thai Beverage’s Oishi ready-to-drink green tea products via import from Thailand. With immediate effect, the Oishi products will be initially retailed in selected convenience stores country-wide.

- We are positive on this development as it would further strengthened FNH’s soft drinks division after its separation with Coca-Cola in 2011. This is coupled with the challenging outlook of the beverage landscape given the increase in soft drinks offering in the market.

- Packaged in a 380ml PET bottles, the group will be distributing four flavours of the Oishi green tea products – Original, Honey and Lemon, Genmai (Japanese rice) and Black Tea.

- Although the selection does not represent the full range of Oishi products, these are believed to be sufficient representation for the market at this juncture.

- Despite FNH having a similar tea product (Seasons Tea) to Oishi’s, we do not sense a conflict due to the different characteristics of these drinks based on their respective Western and Japanese taste. Nevertheless, Oishi products are reckoned to be sold at a premium compared to Seasons as they are not locally produced.

- As it is, FNH holds a 27% stake in Cocoaland Holdings (BUY, FV: RM3.00/share). In light of FNH’s lack of PET bottling technology and associate status in Cocoaland, Cocoaland is the contract packer for some of FNH soft drinks such as 100Plus Edge, Seasons and Sunkist Orange Juice. Such a powerful strategic partner is beneficially to FNH, underpinned by its long term intentions to produce Oishi products locally.

- Looking ahead, we do not rule out the possibility of greater synergies in cross selling of Thai Beverage’s products, supported by commonality and strong distribution of both parties.

Source: AmeSecurities