- We re-affirm our HOLD call on Fraser & Neave Holdings (FNH), with a higher fair value of RM19.18/share (vs. RM18.00/share previously) based on a sum-of-parts valuation, as we have incorporated earnings contributions from the property division starting FY15F.

- Since its separation with Coca-Cola over a year ago, the group has enlarged its portfolio of products, with myCola and 100PLUS Edge recently launched in November 2012. Given the underperformance of fruit tree juices, we believe management could potentially be exploring other strategies to lift earnings, i.e. ramping up the popular products such as the Asian still drinks (Seasons) or isotonic. A stronger 1Q and 2Q is anticipated, underpinned by the festive season.

- With the relocation of Diaries Malaysia to Pulau Indah, the current production capacity has increased by 20%. The boost in capacity will alleviate the current supply constraint in the local market and support an increased footprint in the export market (FY12: +>100% in volume). The volume growth in Diaries Thailand is expected to revert to double digit as it was before the Thai flood misfortune (FY12: -22% in volume) and continue to build presence in IndoChina.

- The relocation of Diaries Malaysia has paved the way for a mixed property development project on its Section 13 land towards unlocking value. GDV is estimated at RM1.6bil. It is planned for launch by 2HCY13.

- Earnings are projected to rise by 24% to RM217mil in FY13F, mainly to be driven by increased capacity of Dairies Malaysia, full-scale operations at its Rojana plant, and its enlarged beverage portfolio. Thereafter, earnings are projected to rise by 6% and 5% for FY14F and FY15F, respectively. The projected dividend yield stands at 2.5% and 2.6%, for FY13F and FY14F, respectively.

- Thai billionaire Charoen,  who owns a combined 34.7% stake in F&N Singapore (FNN SP Equity, Non-rated)  through Thai Beverage PCL and TCC Assets Ltd, has extended his US$7.2bil (RM21.8bil) or S$8.88/share offer until 10 January to increase that to over 50% of  FNN. Meanwhile, a consortium led by Overseas Union Enterprise Ltd (OUE), a Singapore property company controlled by Indonesia's Lippo Group, has made a S$13.1bil (RM32.5bil) or S$9.08/share counter-bid (2.25% higher than Charoen's) for FNN in November last year. OUE is supported by Kirin Holdings, which is FNN's second  largest shareholder with a 14.8% stake. Simultaneously, Kirin has offered to buy FNN's F&B business for S$2.7bil, should the bid succeed. 

- Regardless of the competing bids, both Charoen and OUE are in the beverage business. Given the commonality, any resolution of the take-over will see a greater emphasis on FNH soft drinks division. Thus, we may see cross-selling of products moving downstream. 

- The stock is trading at a PE of 31x for FY13F, slightly above its 5-year peak of 28x. Valuation is also near parity with Nestle Malaysia Bhd's (Nesz Mk Equity, Non-rated) 30x. Newsflow involving the potential M&A of the parent company may influence share price performance in the near and medium term.   

Source: AmeSecurities