- We reaffirm our HOLD recommendation for Fraser & Neave Holdings (FNH) with an unchanged fair value of RM19.18/share, based on a sum-of-parts derived valuation.

- It was reported in local dailies that plans have been unveiled for FNH to combine its stable of brands with those of Thai Beverage (ThaiBev) to grow the beverage business together. This would see both parties cementing a stronger position in Southeast Asia, particularly in Singapore, Malaysia and Thailand, by leveraging on each other’s distribution channels.

- The cross-selling of FNH and ThaiBev products is underpinned by their respective strong beverage portfolios and distribution channels in selected countries.

- In Malaysia, F&N recently started distributing ThaiBev’s 380ml bottled Oishi Green Tea products (original, honey lemon and Genmai flavours) and 380ml Oshi Black Tea (lemon flavour) across 1,460 7-Eleven outlets. The group intends to increase the number of distribution outlets for Oishi to 3,800, by including Shell petrol stations, Guardian and Watson pharmacies, and other provision chains by year-end.

- Meanwhile, plans are underway for FNH to distribute ThaiBev’s Oishi Fruito and Chakulza teas and canned teas in Malaysia, Singapore and Brunei. FNH might also distribute ThaiBev’s own brand of cola drink called Est in due course.

- The development comes as a positive news, as it would further improves the group’s earnings profile, should the ThaiBev products be well accepted in Malaysia.

- On the flip side, FNH could leverage on ThaiBev’s vast distribution network in Thailand to distribute its beverage products and penetrate the rural parts of Thailand. Currently, the group only distributes its dairy products in Thailand (40% market share in the canned milk market).

- All in all, we maintain our EPS estimates. The stock is trading at a forward PE of 29x, slightly above its 5-year historical peak of 28x.

Source: AmeSecurities