Fraser and Neave - Nomura

3QFY10 results luncheon - key takeaways


Kirin likely to be invited to the board. F&N believes that Kirin can add value to the group and will be looking to invite the company to its board. F&N respects Kirin’s strong product development capability and its array of products from beer to soft drinks/dairy products across Asia. F&N has already been associated with Kirin distributing its beer and dairy products in South East Asia. Areas that F&N can work with Kirin include Asian teas and coffee.

Plugging the gap from loss of Coke franchise. Management indicated that Coke products form about RM 500m or about 30% of the softdrinks revenues of F&N Holdings Bhd, its Malaysian subsidiary. F&N is confident about replacing the lost sales with the new Red Bull distribution contract (sales of at least RM 120m annually), market share gains in the Singapore market once the territory reverts back to F&N, and export sales. In addition, the group is introducing more product ranges to further segment the market and capture market share. On operating performance of the softdrinks division, F&N commented that the current quarter will likely be strong as Ramadan occurred in this quarter. Although sugar prices have increased with the recent reduction of subsidies in Malaysia, the company did not experience the full impact.

Tapping growth in Indonesia with 100 plus. F&N is excited about the growth potential in Indonesia and has announced that it will launch its Isotonic Drink 100 plus in Indonesia. Although this market segment is still small, it is growing and therefore the opportunity is promising. The group believes that in the longer term, 100 plus can be as successful in Indonesia as in Malaysia where it is the number one soft drink. In the meantime, management believes that 100 plus can replicate its Malaysian success in Singapore sooner.

Dairies seeing higher costs but likely to be passed. The last quarter saw margins from its dairies division impacted by higher milk powder costs. Management believes that the costs increases will inevitably have to be passed on.

Beer is performing well, especially with Indonesian acquisition. The 3Q results show continued strength of its business across Asia with strong growth in Indochina and new contribution from Indonesia. On whether Asia Pacific Breweries (APB SP) would be keen on Fosters, much would depend on valuation. F&N does not believe in paying a premium valuation for mature growth.

Landbanking opportunistically in Singapore. F&N explained that the group has been bidding for land at prices that it is comfortable with. It believes that there is sufficient land supply available and it should therefore not bid too aggressively. It looks to have an inventory of between 1,500 to 2,000 units to keep a healthy pipeline of launches. On its Starhub Centre acquisition, management explained that the redevelopment will comprise 80% residential and 20% commercial. It is looking at ways to integrate the development with Centrepoint Mall so as to provide an “Orchard Road” access to residents. It will take at least 12 months before it is able finalise its plans.

Launching Central Park soon. F&N is looking launch phase 1 of the Central Park project in Sydney soon. About 3,500 people have registered interest in the 623 units put for sale at about A$900 to A$100psf. F&N is working with parties to develop the commercial components.

On restructuring. The group intends to sell Times Publishing but has not initiated any sale process as yet. It is looking to deploy the proceeds from the sale of its glass container business in Malaysia. Otherwise management conceded that M&A in the F&B space is difficult to execute due to valuations and lack of sellers. The group is happy to maintain its conglomerate

Nomura 1 19 August 2010

structure at this stage until such a time the F&B and property units become sizeable enough to require new capital to grow.

Valuation Methodology and Investment Risks: We value F&N on a SOTP valuation methodology - market prices for its listed stakes, Nomura NAV estimates for its property assets, 5x FY10 EV/EBITDA for Times publishing and FNN Foods. Our price target of S$6.55/share is derived after applying a 5% conglomerate discount to our NAV. Risks to price target: Changes to equity market risk premiums, as well as any unexpected improvement/deterioration in the outlook for the economy and physical real estate markets could see the stock trade above or below our SOTP NAV estimate.

Note: Ratings and Price Targets are as of the date of the most recently published report (http://www.nomura.com/research) rather than the date of this email.

CapitaLand Ltd - Deutsche Bank

Ascott Residence Trust (ART SP) will acquire 28 assets in Europe (17 in France) and 1 each in SG & Vietnam. The Ascott (100% owned by Capl) will concurrently purchase ART's stake in Ascott Beijing for S$214m and reposition it for future strata sale. The acquisition will be funded by a fully underwritten issuance of 487.5m new units by ART (proceeds of S$561m), additional debt & divestment proceeds subject to unitholders approval.

Developer-sponsor model at work - Macquarie

Event


 CapitaLand announced the proposed divestment of 28 serviced residence properties, mainly in Europe, to its 47.7%-owned listed associate Ascott Residence Trust (ART SP, S$1.23, Neutral, TP: S$1.20) for S$970m. This is consistent with its strategy to divest stabilised assets to its listed REIT
vehicles. Net cash proceeds of S$332m will be used to capture new investment opportunities. Outperform maintained.impact

 Transaction highlights. The EBITDA yield of the assets to be divested is circa 5.7% vs ART’s current EBITDA yield of 5.5%. ART will fund via a combination of equity and debt and expects DPU accretion in FY11 of 3.0% to 6.6%, depending on the price of the equity to be raised. CapitaLand will subscribe to ART’s fund-raising to maintain its 47.7% stake.

 Acquiring Ascott Beijing from ART. CapitaLand will pay S$214m for this asset with GFA of 64,155 sqm at Rmb23,000/sqm. The group intends toenhance and re-position the asset for future strata-title sale as residential units. Selling prices for new projects in the Chaoyang district are in excess of Rmb40,000/sqm, although the selling price for CapitaLand will have to be adjusted for shorter length of lease left and taxes.

 Small net gain at group level but lowers gearing at The Ascott Limited (TAL). CapitaLand will realise a gain of S$52m on completion of the divestment expected by year-end. More importantly, the transaction will lower TAL’s gearing from 60% to 27%, providing this SBU with financial capacity to help reach its target of growing its portfolio from 26,546 units currently to 40,000 units by 2015.

Earnings and target price revision

 No change to EPS forecasts and no change to target price.

Price catalyst

 12-month price target: S$4.80 based on a Sum of Parts methodology.
 Catalyst: Further investments in the retail, residential and serviced apartment sectors over the next six months. Action and recommendation

 We believe CapitaLand’s businesses are firing on all cylinders. With a low gearing of 28%, we expect new investments in its key retail, residential and serviced apartment SBUs to help drive RNAV expansion. The shares are trading at a 24% discount to our RNAV of S$5.34. Outperform with potential upside in excess of 20%.

Banks and conglomerates - Nomura

Stocks for action Banks and conglomerates are reasonably valued and offer EPS growth along with high dividend yields. We include stocks that could rerate on stock-specific drivers over the next two quarters.
Stock Rating Price Price target

OCBC (OCBC SP) BUY 8.65 11.80

Fraser & Neave (FNN SP) BUY 5.59 6.55

Keppel Corp (KEP SP) BUY 8.76 11.00

ST Engineering (STE SP) BUY 3.19 3.90

SATS (SATS SP) BUY 2.77 3.40

Noble Group (NOBL SP) BUY 1.66 2.10

Keppel Land (KPLD SP) BUY 3.84 4.68

Biosensors (BIG SP) BUY 0.80 1.20

Venture Corp (VMS SP) BUY 8.85 11.50

Pricing as of 17 August, 2010; local currency

CITIGROUP'S QUICK COMMENT ON CHINA STOCKS - Money Mind

40% beat consensus — 37 Chinese companies have reported 1H10 resultS. 14 beat consensus, spread among financials (PICC, China Minsheng Banking), consumer (ANTA Sports), healthcare (United Lab. Int'l) and internet (Alibaba & Tencent). 17 companies announced results that were in-line with market...

DEUTSCHE BANK'S STOCK COMMENT - Money Mind

Singapore-listed companies delivered firm earnings growth in 2QCY10 but this was largely in line with our expectations. Out of our coverage universe, 36% of the companies delivered better-than-expected results, 38% were in line and 26% below forecasts. This compares to a 50:30:20 split in the previous tw...o quarters.Aggregate earnings were 8% above forecast.