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Brokers' take: Phillip Capital issues 'add' to F&N on continued growth of Vinamilk

PHILLIP Capital has upgraded Fraser and Neave (F&N) to "add" on the back of the continued growth of its Vinamilk brand in Vietnam.

The broker raised its target price for the counter to S$$2.83 from S$$2.53 previously.

Vinamilk - which F&N holds an 18.74 per cent stake and has two representatives on its board - has since April 16, 2017 been reclassified as an associate company.

"Vinamilk contributed approximately S$84 million or 47 per cent of FY17 earnings before interest and taxes - S$51 million as share of associates profit for the five-and-one-half-months for this financial year, and S$33 million as dividend income," the broker said.

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"An exceptional gain of US$1.1776 billion was also recorded from the realisation of fair value adjustment reserve upon the reclassification of Vinamilk, boosting the FY17 PATMI (profit after tax and minority interests) to US$1.2831 billion."

The broker also cited F&N's continued commitment to its dividend policy of at least 50 per cent of its attributable profit before fair value adjustment and exceptional items, with the total dividend for the current period at 4.5 Singapore cents - the same as last year.

However, the broker cautioned that F&N's earnings were dampened by higher finance cost, losses in beverages and its publishing and printing business, and brand investments in new markets.

"The group has turned into net debt position (with gearing at 5.3 per cent) on borrowings to finance the acquisition of Vinamilk shares and continues to face a challenging environment in Malaysia with rising input costs, cautious spending, intensified competition, and weaker ringgit against the Singapore dollar," Phillip Capital said.

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