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Categories
| F&N share price falls on resumption of trade |
| Business & Market 2009 | |||
| Written by Financial Daily | |||
| Thursday, 02 July 2009 11:13 | |||
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The new date represents a 20-month extension from the initial expiry date on Jan 26, 2010. Additionally, F&N had announced on Tuesday that it had signed a letter of understanding with TCCC to buy from the latter a 10% equity interest each in F&NCC Beverages Sdn Bhd and F&N Coca-Cola Malaysia for RM78.8 million, after which both subsidiaries would become wholly owned. Trading in F&N shares was halted yesterday morning and resumed at 2.30pm following the company’s announcements to Bursa Malaysia the previous night. With the extension, F&N would not only continue to bottle and distribute Coca-Cola and Sprite drinks until Sept 30, 2011, it will also be allowed to launch new brands or categories (except cola and lemon-lime carbonated soft drinks) for both domestic and export markets from Jan 27, 2010. Conversely, TCCC will be allowed to pursue opportunities in categories other than isotonic beverages and fruit-flavoured soft drinks in Malaysia on the same date. AmResearch Sdn Bhd maintained its hold recommendation on F&N at RM9.55 with a higher fair value of RM9.85 (previously RM9) based on a price-earnings multiple of 18 times calendar year 2010 forecast earnings per share of 55 sen, after raising its FY10-11 earnings forecast by 7%-13%. The research house said it was positive on the latest development as F&N Malaysia stood to benefit on two fronts, namely earnings boost from continued sales of Coca-Cola and Sprite drinks, and longer runway time to build sales volume of new product launches. “Consequently, we have raised our FY10-11 earnings forecast by 7%-13%, with net profits of RM191 million for FY10 (y-o-y: +4%) and RM206 million for FY11 (y-o-y: +8%), respectively.” “We still like the stock for its strong fundamentals in the sustainable food industry under an experienced management team, as proven by its consistent earnings deliverance record,” it said. AmResearch said TCCC contributed about 35% or RM1.2 billion to group revenue and a higher 48% of group pre-tax profits in FY08. “The TCCC banner products make up roughly 35% of the soft drinks division revenue or RM421 million, of which the balance of 65% or RM765 million comes from sales of 100Plus, F&N carbonated soft drinks, Seasons and Fruit Tree. “Earnings going forward will be underpinned by the group’s four separate divisions, with property remaining the only exception due to the less conducive property market conditions,” it said. The research house said it expected F&N’s net gearing to increase slightly as the group would need to finance the acquisition of 10% equity stakes in F&NCC and F&NCC (M) via internally generated funds as well as bank borrowings. “Given the absence of minorities once the acquisition is concluded, there would no longer be earnings leakage. Based on our calculations, this would increase earnings by an indicative 1.8 sen per share, net of interest expense from borrowings,” it said. AmResearch said although the extension of the Coca-Cola agreement was undoubtedly positive for F&N, the stock price had appreciated 50 sen or 6% in the past week, and offered limited upside potential. “By taking into account the additional earnings as a result of the acquisition of 10% equity stakes in F&NCC and F&NCC (M), we derived a higher indicative fair value of RM10.22 based on PE of 18 times adjusted forecast CY10 earnings of 56.8 sen per share. “As the stock offers 12% total return (inclusive of 5% gross dividend yield), we are inclined to maintain our hold recommendation,” it said. This article appeared in The Edge Financial Daily, July 2, 2009.
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