F&N

F&N: 2QFYSep12 results were weaker than expected. Headline net profit was $85.4m, -37% yoy vs restated 2Q11 numbers. Earnings were affected by $34m in impairment charges resulting from the reclassification of its Jiangsu Dafuhao Breweries in China nad $9.7m in fair value gains. Excluding one-offs, core net profit came in at $103.5m, -31% qoq, -21% yoy. Breweries was a standout, with 2Q revenue +19%. Higher volumes (esp Vietnam and Indonesia) and ASP increases drove profit +38% yoy. Soft drinks continued to decline, with 2Q revenue -20% yoy, -5.3% qoq, and segment profit -71% yoy, -47% qoq, mainly due to the split with Coke. Excluding Coke, the segment’s revenue saw healthy growth of 14% yoy with volumes +15%. On a positive note, mgt commented it has retained a substantial portion of its ex-Coke volumes in Spore (ie. F&N Seasons, Redbull energy drink, Ice Mountain and the recently launched Zesta and F&N Clearly Citrus). It is exploring expansion into the Asean mkts with a focus on Myanmar, Indonesia and Vietnam. For property, revenue fell 34% yoy due to chg in acctg rules (IFRS 115) and the completion of key projects. Meanwhile, segment profit fell 48% due to treatment of mktg expenses for new launches in Spore and Australia, which must be charged at the beginning of a project, resulting in a mismatch btwn revenues and expenses. Nevertheless sales have been robust in Spore (>1440 units sold) while sales at overseas projects have been modest (93 units sold in 2Q). Mgt intends to launch 1570 units (760 from Bedok South project + 412 at The Mark + Phase 3 of the One Central park project + 155 units at the Putney Hill devt + 244 units at Phase 2 of Baitang One project in Suzhou). Deutsche keeps at Buy with TP $7.83. Notes valuations attractive at 26% discount to SOTP, with robust growth from breweries should provide tailwinds for 2H. BOA-ML keeps at Buy with TP $7.70. Expects FNN to outperform peers due to its stable recurring income from invmt properties, backlog of presold resi projects and growth in the beer business. Goldman maintains Neutral with TP $6.78, says stock trades at 1.33x FY12 P/B, at the top end of its 5yr historical range (mean 1.15x).