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Which company could boost F&N's earnings by 40% in FY17?
Almost half of F&N’s FY16 net profit was also from this firm.
According to RHB Research, since December 2016, F&N has deployed a substantial part of its war chest to increase its stake in Vietnam Dairy Products JSC, also commonly known as Vinamilk. F&N has spent ~S$850m to raise its stake in the Vietnamese dairy company to 17.7% from 11%.
Vinamilk is Vietnam's largest company by market capitalisation and is also largest dairy company in the country, with over 50% market share in various milk categories. The acquisition opportunity came about as a result of the Vietnamese Government's intention to reduce their stake in state-owned enterprises through a privatisation drive.
Here’s more from RHB:
Growth through acquisitions is in-line with F&N’s goals to rebuild itself into a regional food & beverage (F&B) powerhouse, especially after it had sold its stake in Asia Pacific Breweries (2012) and Myanmar Brewery (2015) amidst the takeover of F&N by TCC/ Thai Beverage PCL (ThaiBev).
Left with a S$1bn of war chest and ample debt capacity, Vinamilk is the first large F&B company that has been targetted by F&N. Management has highlighted that acquisitions outside of Thailand will be undertaken by F&N rather than by ThaiBev. As such, we expect F&N to remain on the lookout for additional acquisition opportunities in the region.
In FY16, Vinamilk contributed S$48m to F&N's bottom line via dividend income, accounting for 44% of the Group's net profit of S$108m. With increased stake in Vinamilk, coupled with Vinamilk's strong organic growth, we believe dividend income from Vinamilk could double to S$94m in FY17.
This alone would boost F&N’s earnings by 40%, assuming profits at its dairy/soft drink divisions remain unchanged. F&N is looking to further raise its stake in Vinamilk to at least 20% so that it can equity account for its share of profits from the latter.
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