3 Things You Need To Know About Fraser and Neave Ltd


Fraser and Neave Limited (“F&N”) (F99.SI) is one of the leading players in the food and beverage space in Asia Pacific. It was founded in 1883 by two Scotsmen John Fraser and David Chalmers Neave. They established The Singapore and Straits Aerated Water Company to produce carbonated soft drinks. A couple of years down the road, F&N became a public company after issuing shares to the public.

With many milestones along the way, F&N became the company that we are familiar with today, with staples brands like 100 Plus, Seasons, Ice Mountain, NutriSoy, Magnolia, Farmhouse and more.

Here are some of the notable milestones along the way:
  • 1931: JV with Heineken N.V. to form Malayan Breweries Limited (Asia Pacific Breweries Limited) to produce beer
  • 1936: Awarded the Coca-Cola bottling franchise for Singapore and Malaysia
  • 1959: Region’s first sweetened condensed milk plant built in Malaysia, under JV with Beatrice Foods of Chicago
  • 1968: Dairy production started in Singapore
  • 1983: To mark 100 years, 100Plus was launched (now you know)
  • 1995: Myanmar Breweries Limited registered for Myanmar’s beer market
  • 1996: In compliance with Malaysia’s New Economic Policy, Fraser & Neave Holdings Berhad came into the picture
  • 2000: Majority control of Times Publishing Group
  • 2002: Delisted Times Publishing and Frasers Centrepoint Limited through two voluntary conditional offers in 2001
  • 2006: Launched its retail REIT – Frasers Centrepoint Trust
  • 2008: Acquired 17.7% stake in Allco Commercial REIT (now Frasers Commerical Trust)
  • 2012: Divested Asia Pacific Breweries Limited
  • 2013 Became part of Thailand’s TCC Group, distributed S$4.73 billion, the bulk of Asia Pacific Breweries Limited sale
  • 2014: Demerged properties business through distribution in specie of Frasers Centrepoint Limited to F&N shareholders, returned capital of S$607 million in cash to shareholders
  • 2015: Disposed 55% stake in a Myanmar brewery for US$560 million in cash

Find out more here.

STOCK SYMBOL

TICKER SYMBOL: SGX: F99
MARKET CAP: S$3.34 Billion (10 April 2017)
MARKET PRICE / SHARE: S$2.31 (10 April 2017)
INDUSTRY: Food and Beverage

1

THE BUSINESS

The F&N of today has three core operations – Beverage, Dairies and Publishing business. Above all, Markets like Singapore, Malaysia, Myanmar, Thailand, Vietnam and Indonesia made up 96% of the Group’s revenue in 2016.

For 2016, here was how F&N revenue came about:

  • Singapore: 24%
  • Malaysia: 43%
  • Myanmar, Thailand, Vietnam and Indonesia: 29%
  • Others (China, Taiwan, India, Australia, Europe and USA): 4%

In terms of business segment:

  • Beverage: 29%
  • Dairies: 55%
  • Publishing & Printing: 16%
  • Others: ~0%

KEY OPPORTUNITIES

  1. F&N Holdings Berhad

In 2016, F&N’s results were in no small part assisted by their 55% owned subsidiary F&N Holdings Berhad. You could describe this as their Beverage arm in Malaysia and Thailand. Compared to 2015, F&N Holdings Berhad’s profit was up by 26%, and this was accounting for Malaysian Ringgit against Singapore dollar! In constant currency terms, F&N Holdings Bhd’s profit was up 38%. Moverover, that was primarily attributed towards their record profit growth in Thailand by 79%. More important, given that its major shareholder is based in Thailand, it can be considered as a home ground advantage.

Moreover, in its 2016 annual report, other than aiming to double the capacity of their East Malaysian soft drinks plant by 2021, F&N also has other Malaysia-based infrastructure projects coming on stream between 2016-2018. And with ~S$70 million of CapEx planned in 2016, and a restructure of their Malaysian soft drink and dairies business, this looks like the geographical directions that F&N is heading towards. Sidenote: Over the years, a notable development was the reduction of its stake in F&N Holdings Berhad, from 60% (2001) to 55% (2016).

  1. Vinamilk Investment

It has been no secret that F&N has been accumulating shares in Vietnam Dairy Products Joint Stock Company or more commonly known as Vinamilk. More importantly, it is the largest dairy company in Vietnam (around half of the domestic market’s dairy goods). Furthermore, it is also Vietnam’s top listed firm by market value.

Following an additional 5.4% stake on 12 December 2016, F&N’s stood as Vinamilk’s 2nd largest shareholder with an interest of 16.35%. This 5.4% stake was reportedly valued at about US$500 million (S$715 million), translating to a market cap of ~US$9 billion for the entire company. That is to say, F&N’s interest in Vinamilk was worth about US$1.5billion, roughly correspondingly to the S$1.9 billion on its books (1Q2017 results). That is close to 60% of F&N’s current market cap. Sidenote: In the same document (1Q2017 results), F&N further increased their stake in Vinamilk by 1.1% to 17.5%.

This might also help in F&N plans of directly and indirectly investing in new markets of Myanmar and Vietnam. Hint: Long story short, if you are optimistic on Vietnam’s consumer sector, F&N might be able to function as a good proxy for the Vietnam dairy market.

  1. Track Record of Shareholders’ Distribution

In the last 2 years (2015 & 2016), dividend pay-out averaged 62%.

Beyond that, here was what happened since 2013 (the year that F&N became a part of Thailand’s TCC Group):

  • 2013: Capital distribution of S$3.28/share in cash to shareholders (totaling S$4.73 billion, substantially from the gain from Asian Pacific Beverage sale)
  • 2014: Spun off Frasers Centrepoint Limited via a dividend in specie of two FCL shares for each F&N share, at no more cost to shareholders
  • 2014: Capital Distribution of S$0.42/share in cash (S$607 million)

KEY RISKS

  1. Singapore and Printing and Publishing segments

First, let’s briefly go through the situation with their Printing and Publishing business.

In the last two years, F&N’s printing and publishing business reported losses, with PBT of -S$15 million (2015) and -S$5 million (2016) due to various reasons – one of which were restructuring costs in 2015. Although the reduction in losses looked encouraging, there might be structural issues in the printing and publishing industry that the company should consider.

Now for their Singapore operations. From their segmental breakdown, their Singapore operations reported losses on a PBIT level for the past two years. This segment was re-stated in 2014 post-FCL demerger.

On the bright side, not only did F&N’s Singapore beverage operations have higher revenue (up 19%), its PBIT (up 63%) was also significantly higher. Also in Singapore’s:

  • Isotonic Drink segment: 100Plus was still the market leader
  • Pasteurised Asian Soft Drinks segment: Nutriwell was #1
  • Soya segment: Nutrisoy was #1
  • Bottled Water segment: Ice Mountain was #1
  • Flavoured Carbonated Soft Drink segment: F&N was #1
  • Ready-to-Drink Black Tea segment: Seasons was #2

In any case, if the company manages it to turn things around, an investor could possibly view both F&N’s Singapore operations and its Printing and Publishing business as a bonus. Sidenote: It might be a possibility that F&N’s Singapore operations have considerably higher expenses as the company’s corporate office is in Singapore.

  1. Malaysia, Thailand And Vietnam Investments Not Going as Expected

Today (April 2017), F&N has a market cap of S$3.3 billion.

  • 55% of F&N Holdings Bhd is ~S$1.5 billion (55% of RM8.8 billion)
  • 5% of Vinamilk is ~S$2.4 billion (based on the S$736 million F&N paid for a 5.4% stake in Vinamilk in December 2016), or if one is more conservative, you could also possibly go for the figure under their “Other Investments” of S$1.9 billion in 1Q2017 (prior to their additional 1.1% investment after the quarter ended)

Either way, it is quite reasonable to comment that the bulk of F&N’s current value came from these two investments/operations. Meanwhile, as investors, we have to be cognizant of the possibility that things might not always go as expected. Remember, it might be improbable, but not impossible. Sometimes, things don’t go as planned.

MAJOR SHAREHOLDERS

  1. TCC Assets Limited – 59.35%
  2. InterBev Investment Limited (Subsidiary of Thai Beverage PLC) – 28.53%

Note: Charoen Sirivadhanabhakdi has interests in both TCC Assets Limited and Thai Beverage PLC.

FINANCIALS

Income Statement – Click here

Balance Sheet – Click here

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in the author’s personal capacity and do not in any way represent those of his employer and other related entities. 

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