- We maintain our HOLD recommendation on Fraser & Neave Holdings (F&N), with a slightly lower DCF-based fair value of RM18.00/share (RM18.10/share previously) post our earnings revision and rolling over of our base year to FY13F.

- F&N posted a lower net profit of RM239mil for FY12 (YoY: -38%). However, we deem the results to be largely in line with our expectations as a lower normalised PBIT (YoY: -14%) after stripping out EIs of RM35mil, was mainly attributable to earnings setbacks stemming from the Thai floods and smaller property contribution of RM55mil (50% capital gain from PJ land disposal to JV co). EIs comprise one-off charges in relation to:- 1) Soft drinks restructuring; 2) Accelerated depreciation; 3) Pulau Indah relocation expenses and; 4) Coca-Cola business cessation.

- Importantly, F&N's star performer soft drinks continued to maintain its growth momentum with a 21% YoY surge in normalised PBIT. Soft drinks revenue was up 10% on the back of sales volume which grew 12% despite the absence of the Coca-Cola business. Notwithstanding a muted performance from F&N's FruitTree juice range, we see promising prospects on the back of rising contributions from sales exports, contract packing for Singapore  and launch of new products (My Cola & 100Plus Edge).

- As anticipated, dairies Thailand bore the brunt of flooding which resulted in revenue dropping 21% due to a 200-day interruption to operations at Rojana, Bangkok. We expect the absence of dairy outsourcing activities to drive margin recovery, and spur an earnings rebound from 1QFY13F onwards, especially following a successful market share expansion during the floods. The stronger foothold should aid F&N's long-term push into IndoChina countries, while the launch of 'HI Calcium' is aimed at spurring growth within the Malaysia market. 

- Management declared final and special (single tier) dividends of 23 sen/share and 15 sen/share, respectively, bringing total dividends to 58 sen/share for FY12. Excluding special dividends, this year's dividend payout ratio of 77% is close to FY11's 76%.

- All in, our FY13F-14F EPS have been trimmed by 15%-18% as our initial sales volume growth assumptions have been too optimistic. Earnings upside would come from the realisation of F&N's mixed property development project with a GDV of RM1.6bil by end-2013. Newflows on potential M&A involving parent company Fraser & Neave Ltd (FNN Sp Equity, Non-rated) should also fuel investor interests.