F&B accounted for 54% of group profits, up from 40% a year ago, led by a strong profit rebound in Dairy (+40% yoy) and decent performance by Soft Drinks (+8%) and Beer (+9%). The festive season boosted Soft Drinks volume, while Dairy (PBIT +125% yoy in 2Q) in particular saw profits boosted by lower raw material costs. Beer profits would have grown by 16% yoy if not for forex and gestation losses. However, property profits fell 34% yoy to 46% of group profits as several Singapore projects (Raintree, Azure, One Leicester and Infiniti) were completed while $31m in foreseeable losses on overseas projects was provided for.
Interim dividend was cut from 5 cents (36% payout) to 3 cents (26% payout) as F&N opted to conserve capital as it still needs to refinance some $600m in borrowings. While management ruled out a rights issue of its own, it may still need to support FCOT’s rights issue, which we reckon is more likely to happen than not. As at Mar 2009, FCOT had short term debt of $619m due in July and F&N owns 22% of FCOT.
With Coke out of the picture next year, F&N will be able to add new product categories and expand beyond Singapore and Indonesia. Growth prospects post-Coke could be exciting but in our view, will take some time to fully emerge.
We maintain a Hold call on F&N while price target has been raised to $3.50 based on 15x P/E. Our RNAV is $3.79 and includes a 30% discount). Dividend yield is also not exciting at just 2.4%.
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