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Qi Jie asked 2 years ago

Hi may I have your thoughts on F&N? Is it worth the time to look into it? Also, how would you value F&N? The P/E and PCFO seems distorted due to their past divestment activities. 
Here are some of my thoughts for this company, I hope maybe Victor can help input some of your views.
Firstly, the different segment seems to be lagging, such as beverages and printing & publishing. I am not sure if they should divest their printing & publishing services and focus fully on just beverages, as their management also mention they just increased their stake on Print Lab in April 2019. The only good thing is their dairies segment seems to have decent growth. Also, acquiring a 20% in Vietnam Vinamilk is seems like a good move as the numbers seem to be going up for now. 
Secondly, their growth seems limited to only SG, MY and Thailand? Thailand is mainly their condensed milk, whereas MY seems to have the strongest foothold for their beverage segment. They are also expanding into Myanmar with Emerald Brewery Myanmar. 
Lastly, the company is mainly owned by Thaibev as they have about 87% stake in it. After divesting all other segments, could ThaiBev turn F&N around and still make it a worthwhile to invest in F&N? 
Moving forward, the risk seems to be their raw and packaging material costs. They seems to be handling sugar tax quite ok with the plan to have more healthy drinks with low and zero-calories beverages. The competition is also quite strong, with a net profit margin of 6%, the main contribution seems to be mainly from their dairies segment. Maybe to value F&N the best is to just value base on their dairies segment? Also what ratio would be the most suitable?
I also read the article you wrote, so what are your thoughts now? 
Thank you.

Zhi Ming Cheah replied 2 years ago

1 word. Overvalued.
I assume you have went through the business and management quadrant.if you did the valuation, you will realize they are overvalued regardless what valuation metric you use.

Valuation metric (compare with current price)
Their current price: 34.50
Peg= 25.18
DFE= 19.99
dcf = 27.79
div = 9.54 ( based on desired dividend yield of 6.03%)
nav = 6.26

Investment quadrant valuation metric:

pe ratio (adj) = 40.9 when their 10 years average is 37.31 (excluding 40.9).
p/s = 3.0 (>2.0)
p/b = 5.2 (>1.0)
p/tb=5.5 (>1.0)
p/c=21.8 ( average 15.85, exclude year 2012 and 2017 where the p/c is ridiculously high (66.3 and 44.5))

I didn’t study about this company, so no comment about its business or management.
You can put this into your watchlist, just know that right now it is significantly overvalued like nestle and you have to pray something catastrophic like food poisoning for the price to drop significantly.
Btw, you might want to do your own calculation, mine may not be accurate, i did some adjusting for one off item. Good luck.

Zhi Ming Cheah replied 2 years ago

about your query on which valuation is the best, in my opinion, you have to ask yourself, you bought this company for capital gain or dividend. if capital appreciation, then look on discounted future earning, if for dividend, you set your desired dividend yield and calculate the price that is undervalued.
You can consider price to book as well since their % of fixed asset to total asset is 55% (in class, it is mention that asset light, ideally <30%, 40-50% still acceptable).

Qi Jie replied 2 years ago

Hey Zhi Ming, thanks for the reply, but I am currently looking at the SG F&N, sorry for the confusion. But thanks for the input, appreciate it alot! :)

Zhi Ming Cheah replied 2 years ago

Oh. Okay, cool. You might want to study their financial quadrant 1st. At a quick glance, Sg f&n financial quadrant is pretty bad (decreasing revenue, operating cost, increasing liability, etc) . Good luck anyway.

3 Answers
Qi Jie answered 2 years ago

Also, the profit in 2018 had a big plunge when F&N started to equity account its share of Vinamilk’s profit in April 2017. Could you help explain?
After the last divestment of the property arm in 2015, the overall profit is slowly rising back, so what are your views? (Including those I mentioned above)

Jieren Zheng answered 2 years ago

The printing business was kinda forced on them and they won’t be selling at all. I remember hearing that from one of their AGMs.

Qi Jie replied 2 years ago

Sorry, can you explain more? What do you mean by “force”

Jieren Zheng replied 2 years ago

If my memory serves, one of the major shareholder of F&N, will not allow them to divest that business of his.

Victor Chng replied 2 years ago

The owner of Thai Beverage don;t believe in divesting business hence they are doing their best to maintain and grow the printing business.

Victor Chng answered 2 years ago

Hi Qi Jie,
I think F&N is facing quite a structural disruption in their business because of the war in sugar. With more countries are aware of the sugar issue, government are increasing the tax on sugar around the region. With the increase in sugar tax, F&N have to come out with drinks that have less sugar but the issue is after they reduced the sugar, the consumption is reduced. I think we just have to wait and see how the situation will changed in the coming years.

Qi Jie replied 2 years ago

Noted on that, tks for the input Victor!

Victor Chng replied 2 years ago

welcome :)