· We reaffirm our HOLD recommendation on Fraser & Neave Holdings Bhd (FNH) with an unchanged fair value of RM17.40/share, pegged to 22x PE over FY15F earnings.

· FNH announced that the exclusive marketing, distribution and sale of Red Bull energy drinks in Malaysia will not be renewed upon its expiry on 31 March 2015. FNH had a five-year contract to distribute Red Bull drinks since 1 April 2010.

· We viewed this development as a temporary setback for FNH. Since the separation with Coca-Cola that ended on 30 September 2011, FNH had enlarged its portfolio of products with myCola and 100PLUS Edge. Its soft drinks’ sales volume had recovered to almost pre-termination level currently.

· While it would take time for FNH to regain volumes, we believe that synergies with Thai Beverage would help to cushion any shortfall from the lost in volumes. As it is, FNH currently distributes Thai Beverage’s Oshi drinks in Malaysia. More crossselling with Thai Beverage is expected, moving forward.

· Nonetheless, FNH would continue to roll out new products and expand distribution network for greater market penetration to boost sales volume.

· On the flipside, this would enable FNH to focus on its own products and new product development given the absence of Red Bull drinks.

· We make no changes to our FY15F-FY17F EPS estimates for now. We project FY15F earnings at RM290mil.

· Given FNH’s strong franchise and brand name, GST impact is unlikely to significantly affect sales volume, underpinned by its resilient business model as a consumer staple.

· The stock is currently trading at a PE of 23x, above its five-year average of 20x. Maintain HOLD.

Source: AmeSecurities