Asia Pacific Breweries / F&N

Asia Pacific Breweries: Annouced that it plans to sell its 21.4% stake in Kingway Brewery Holdings (50-50 JV with Heineken) to a potential purchaser for about Rmb1.08b, representing an estimated premium of 72% over the book value, resulting in a gain of approximately $76m after deducting FX and transaction related expenses….

By virtue of its 50% stake in Heineken-APB China, APB's share of the gain from disposal will be approximately $38m. Co. said that agreement with a potential purchaser to divest will lapse if GDH, the controlling shareholder of Kingway Brewery, exercises its pre-emption right to acquire the sale shares on the same terms it sold the stake to Heineken-APB in 2004.

F&N: APB’s divestment of Kingway Brewery, could also provide some positive sentiment for parent F&N, where Kim Eng has a Buy Call on grp today, with a $8.54 SOTP TP. With F&B accounting for 58% of Group pre-tax earnings, soft drinks division is expected to continue solid growth as new drinks variants increase sales vol….

Expect F&N to work closely with Kirin to launch new products. The increased capacity of F&N’s soft drinks factory in Shah Alam and new dairy plants in Rojana (Thailand) and Pulau Indah will support F&N’s ambitions to reach the skies in the non-alcoholic beverage industry. Tip more acquisitions by F&N to grow its market share in this segment…..

Note that since the introduction of the latest property cooling measures on 13 Jan this yr, property counters declined sharply. Property counters now trade at 20-30% discount to their RNAV. The valuation discounts remove the incentive for F&N to spin off its property arm for the time being. The potential earnings boost from the vol growth in the soft drinks and dairies divisions are catalysts for further re-rating. At 1.3x P/B (10-year historical average), valuation remains attractive.