Thai Bev / FNN

Thai Bev / FNN: with FNN facing delisting and removal as an STI constituent, Business Times notes that the focus will now turn to possible large cap property and consumer stocks – such as HPH Trust and Thai Bev – that could come into play. Under current index rules, when an STI component stock is delisted, it will be replaced by the stock on a 5 counter list that had the highest mkt cap 5 days before delisting. This means HPH Trust is next in line to replace FNN, beating out Keppel Land, A-Reit, CCT, and UOL. But the constituents could change again come the next STI review in Mar ’13. KELive has highlighted before, and other analysts agree, that Thai Bev is a good replacement candidate at subsequent reviews. Thai Bev not only fulfils the market cap and trading criteria, but through its F&B exposure, offers sector diversification for the STI, as it is lacking in this area. In the event that the remaining STI constituents receive higher index weighting, CLSA previously noted that beneficiaries would be OCBC, Jardine Strategic, ST Engineering, SIA Engineering, and Starhub. Separately, FNN appoints new directors. Thai tycoon Charoen Sirivadhanabhakdi has appointed his son Thapana Sirivadhanabhakdi and son-in-law Chotiphat Bijananda as non-independent and non-executive directors, wef yday. The quick Board change signals TCC Assets/ Thai Bev earnestness for a smooth leadership transition, paving the way for a potential restructuring of the group. We reiterate Thai Bev has two key catalysts that could see the shares re-rated. i) Potential asset swap involving F&N's F&B unit in exchange for the 29% stake in FNN that Thai Bev holds, allowing Thai Bev to emerge as an Asean F&B mammoth. Expect synergies and cost savings, given the deeper and extended geographical penetration and broader product portfolio. ii) Thai Bev has a possibility of replacing FNN as an STI component stock, as early as Sep '13. Given that Thai Bev currently has no meaningful institutional shareholder representation, it bodes positively for stock demand if there is a subsequent rush by "benchmark-focused" funds to acquire exposure.