Established in 1883, Fraser and Neave, Limited (“F&N”) is a leading Southeast Asian consumer group with a prominent standing and experience in the Food & Beverage and Publishing & Printing industries. The Group is geographically diversified across 11 countries in Asia Pacific, Europe and the USA, and employs over 6,900 people worldwide as at 30 September 2021.
F&N is listed on the Singapore Stock Exchange, and it is ranked as one of the most established companies with a wide range of renowned brands and strong market leadership. Some of F&N’s leading brands include 100PLUS, F&N Magnolia, and F&N Seasons. The Group mainly operates through 2 segments: 1) Food & Beverage (“F&B”) and 2) Publishing & Printing (“P&P”) which is mainly led by its wholly-owned subsidiary, Times Publishing Limited. As at 30 September 2021, F&N’s Food & Beverage segment takes up ~87% of total revenues, while Publishing & Printing only takes up ~12% of the Group’s revenues.
Proceeds from the bond offering will be used to fund the working capital and capital expenditure requirements, as well as to refinance the Group’s borrowings. Both the issuer and new issue are expected to be unrated. The 3-year senior unsecured issue is fixed rate and it is expected to mature on 9 May 2025 with a final price guidance (“FPG”) of 3%. Interest payments will be semi-annual in arrears on 9 November and 9 May each year, and the first pay date will fall on 9 November 2022. As at 11am, orderbooks are in excess of SGD 100m.
For the financial year ended 30 September 2021 (“FY21”), total revenues for the Group expanded slightly by 2.5% year-on-year (“YoY”) to SGD 1.88b on the back of a strong performance from its F&B division, which helped to offset the decline of its P&P segment. Top-line growth for its F&B division was broad-based, with higher sales recorded across Malaysia, Singapore, Myanmar and Thailand. However, due to lower contributions from the Group’s associate company in Vietnam and higher commodity prices, its F&B profit before interest & tax fell 8.1% YoY to SGD 258.1m.
Meanwhile, its P&P division posted a marginal decline of 3.3% in revenue for the fiscal year, but managed to narrow its losses from SGD 10.5m in FY20 to SGD 2.5m due to the improved profitability of its Education Publishing and Book Distribution business as well as its rigorous restructuring exercises. Going forward, F&N aims to diversify its education business by expanding its digital footprint and exploring new international markets to capture more growth opportunities. For FY21, F&N net profit fell slightly by 5.8% YoY amidst the strong cost headwinds and Covid-19 challenges, but net asset value per share was slightly higher at SGD 2.08 in FY21 as compared to SGD 2.05 in FY20.
F&N still maintains a strong credit profile despite the tough operating environment. Net gearing ratio for FY21 improved by 3.5 percentage points (“ppt”) from a year ago to 15.1%. The Group has a healthy liquidity position with a current ratio of 1.24x, while its cash & bank deposits of SGD 471.8m is more than sufficient to cover its total short-term borrowings of SGD 427.6m despite the reclassification and spike in current borrowings. We estimate its EBITDA coverage ratio to be ~15.6x, therefore, its interest servicing ability still remains robust even though its profit before interest and tax declined in FY21.
Moving on to its relative valuation, we think that the new issue does not look too attractive. Among F&N’s existing bonds, the FNNSP 2.000% 16Jun2026 Corp (SGD) is currently yielding at ~3.30% with 4.1 years left to maturity. Comparing it to the new issue, the FNNSP 2.000% 16Jun2026 Corp (SGD) has a yield pickup of ~30 basis points (“bps”) with a slightly longer time to maturity of 1.1 years. We believe that the pricing of the new SGD issuance falls slightly below its current yield curve. Nonetheless, investors who are looking for short-duration, stable income options may consider the 3% 2025 notes issued by F&N.
Declaration: For or specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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