KUALA LUMPUR (Jan 20): CGS-CIMB Research today kept its "hold" call on Fraser & Neave Holdings Bhd (F&N) and target price at RM31.60 after the latter announced the completion of acquiring three food and beverage companies — Sri Nona Food Industries Sdn Bhd, Sri Nona Industries Sdn Bhd and Lee Shun Hing Sauce Industries Sdn Bhd — for RM60 million.
"We understand that F&N does not expect the acquisition to have a material effect on its consolidated earnings in FY9/21. We have yet to input any contribution from the acquisitions into our FY21-23F forecasts pending further details such as the operating metrics and growth plans of these companies," CGS-CIMB analyst Walter Aw said in a report today.
He added that as F&N has identified halal food as a new pillar of growth, the acquisitions will equip it with established brands and a platform to penetrate more halal food segments.
"The purchase consideration arrived on a 'willing buyer-willing seller' basis, which accounts for its net asset value of 2.8 times in FY6/20 of RM21.4 million, and brands owned by the three companies," he said.
According to Aw, F&N had earlier stated that it would finance the acquisitions via internally generated funds, as it had net cash of RM401.7 million as at end-FY9/20.
Aw also noted that F&N plans to leverage its existing research and development capabilities to introduce more innovative products to cater to the rising demand for convenience and ready-to-eat food products.
Under the "NONA" and "Lee Shun Hing" brands, the three companies are involved in the manufacturing, distribution and sale of rice cakes (ketupat), condiments (oyster sauce and paste), beverages (ginger tea powder), desserts (pudding and jelly powder), and jams and spreads.
Citing F&N, Aw said Sri Nona's flagship product, the NONA Ketupat (rice cakes) range, is the number one "ketupat" brand in Malaysia while Lee Shun Hing's range of oyster sauce is among the top three in its category.
Aw noted that while he continues to like F&N for its defensive business, he believes the stock is currently fairly valued (trading near +1 s.d. from its five-year mean). He added that a key upside/downside risk is a sharp decline/increase in raw material prices.
At the time of writing, F&N's share price fell 23 sen or 0.73% to RM31.20, which values the company at about RM11.46 billion.
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