F&N reported 60% rise in earnings before exceptional items to $60.7 million for 3Q17, from $38 million a year ago.
“Margins for its core operations could moderate going forward given higher input prices,” says DBS lead analyst Andy Sim in a Thursday report. “Thus [we] believe the current share price already reflects its current growth profile.”
Sim adds that DBS’ sum-of-parts target price for F&N is based on the share prices of its two main entities – F&N Berhad and Vinamilk – and offset by estimated net debt attributed to the group.
See also: SAC Capital initiates coverage on Reclaims Global with ‘buy’ call and target price of 49.7 cents
The target price implies a PE of close to 24.4x for FY18F.
“FNN has indicated that it would acquire more shares in Vinamilk if opportunities arise,” says Sim. “This development is within our earlier expectations that the group would be looking for inorganic growth sources.”
“While its available cash has been largely depleted by its investment in Vinamilk, we believe it will leverage on its balance sheet for debt, and possibly equity fund raising,” he adds.
See also: JP Morgan increases DBS’s TP to $70; upgrades OCBC and SGX to ‘overweight’ and UOB to ‘neutral’
Meanwhile, DBS believes that, contrary to market expectations, there is unlikely to be an outright share swap between ThaiBev and TCC Assets for FNN and Frasers Centrepoint Limited (FCL) shares.
“Instead, we believe ThaiBev will only increase its stake in FNN when opportune,” says Sim. “We continue to believe FNN will be the vehicle for ThaiBev’s expansion outside of Thailand and for non-spirits businesses.”
As at 3.07pm, shares of F&N are trading 15 cents higher, or up 6.4%, at $2.49.
