The Group continues to add Vinamilk shares throughout the quarter. It currently holds 19.5% stake in Vinamilk, up from 18.74% in 4Q17. It has recently registered its interest to acquire an additional 1.0% from the open market.
We are cautiously optimistic on the trading environment in Singapore and Thailand; while we expect persistent headwinds in Malaysia. In addition to the rising input costs and intensified competition, the upcoming general election in Malaysia could further weigh against consumer sentiment and Ringgit’s strength. The Group will continue to reinvest its earnings into brand building efforts in New Markets, namely Myanmar, Vietnam and Indonesia, adding new avenues for growth.
Maintained ACCUMULATE and sum-of-parts derived TP of S$2.83
We believe that FY18e earnings would be supported by (a) higher profit share from Vinamilk with full 12 months contribution in FY18e, and (b) benefits from restructuring initiatives to be realized. We expect Vinamilk to continue to drive over 40% of the Group’s EBIT moving forward.
Potential re-rating catalyst: (i) Stronger than expected performance from Vinamilk; (ii) A strong earnings turnaround for Printing & Publishing segment.
FNN is currently trading at adjusted Trailing 12-month P/E of 33.7x. Our SOTP derived TP implied a 27.1x FY18e P/E, which is 27% higher than its ASEAN Beverages peers at 21.3x. Around 45.7% of our SOTP comes from Vinamilk.