F&N has moved 88% of its projects under development in Singapore, following a resurgence in the primary market. F&N has about 1,000 units left in its landbank and it is likely to start buying land soon, given its policy of keeping 2,000 units in stock for redevelopment. Balance sheet headroom should come from renewed cashflow momentum, while the FCOT recapitalisation has removed the overhang.
FCOT has also proposed a plan to resolve its funding needs without immediately and substantially diluting unitholders but it did require a sacrifice by F&N via the injection of Alexandra Technopark into FCOT at a yield-accretive price and the guarantee of a rental income stream for 5 years in order for FCOT to obtain banking facilities.
Finally, F&N has bought more time to strengthen its own-brand F&B business after Coke agreed to delay the termination of mutual bottling arrangements by 20 months from Jan 2010 to Sep 2011. While the removal of geographic and category restrictions could be exciting, &N does not have the home ground advantage in other SEA markets, and Coke will also be able to compete with F&N.
At the current share price, F&N is trading close to our RNAV of $4.14, which has been raised from $3.78 following the recent improvement in local property sales and our assumption of lower construction costs going forward, which will boost property development surplus. We reckon the stock has already priced in recent positive developments and maintain our HOLD call.
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