Group topline growth was driven mainly by progressive recognition of fully sold property projects in Singapore - One Jervois, One St Michael, Clementi Woods, St Thomas, Soleil@Sinaran, Martin Place Residences and Waterfront Waves – and Songjiang Four Seasons in China. However, it appears that earnings quality was not high. Although property development revenue jumped 44% YoY, PBIT grew only 6%.
In contrast, the F&B businesses performed strongly with both topline and margin improvement. Segment revenue grew 3% YoY but PBIT jumped 27% to account for 42% of group profits, as margin improved 2.5%-points. Soft drink sales grew 15% followed by breweries at 4%. While dairy sales fell 4% (due mainly to lower exports), it chalked up the best margin improvement overall on lower input and packaging costs.
While F&N is almost out of landbank, recent sales success should help it tide over the next 12 months. Moving forward, it will need to start landbanking in Singapore soon. On the F&B side, the extension of the bottling agreement with Coke will gain F&N extra time to build up its own branded soft drinks volume. The removal of geographical and category selling restrictions could be exciting in the long term but F&N does not have the home ground advantage in other SEA countries 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 $4.17 (previously $4.14). We have raised our forecasts to account for the bottling agreement extension as well as higher F&B margins but impact on RNAV is minimal. We reckon the stock has priced in recent positive developments and maintain our Hold call.
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