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Is Fraser & Neave Limited A Value Beverage Maker?

Singapore is home to a handful of companies that are part of the beverage industry: Thai Beverage Public Company Limited (SGX: Y92), Fraser & Neave Limited (SGX: F99) and China-based Dukang Distillers Holdings Limited (SGX: GJ8).

It is also home to Yeo Hiap Seng (SGX: Y03), which is an investment holding company that produces popular Asian drinks. YHS also has a licence from PepsiCo to produce drinks such as Pepsi and Mountain Dew.

These four companies have had mixed experiences over the last 12 months.

ThaiBev, which is capitalised at nearly S$19b, is the titan amongst the four. The company has seen its share price steadily climb over the last 12 months from below S$0.60 cents a share to its current price of S$0.75 cents. This is just shy of its all-time high that it hit in October last year.

The company is well established both in Asia and globally but it is still seeking to expand its operations. Earlier this month ThaiBev announced its expansion into East Timor.

From 2011 to 2014, cash flow from the company’s operations doubled. At its current price, however, ThaiBev is certainly not a value stock. It’s price-to-earnings ratio of 21 and valuation of 4-1/2 times book are indicative of a blue chip.

F&N has experienced similar growth in the first quarter of 2015, albeit more timidly. The share price has risen from S$2.74 in January to its current price of S2$2.81. Unlike ThaiBev, though, this is closer to its 52-week low of S$2.59 rather than its corresponding high of S$3.20.

Even at this relatively low price, the very low earnings yield along with a price-to-book ratio of 2.8 would rule it out as a value stock.

The remaining two companies have been in steady decline in terms of their share price. Both Dukang and Yeo’s are at their 52-week lows.

Both companies have experienced falling revenue while cash flows from their operations over the last few years have been squeezed. Compared with their current earnings, their prices still appear high. Dukang is priced at 190 times historic earnings, while F&N is valued 56 times earnings.

Where suitors might find appeal in the two companies is their sound financial health. Neither has taken on much in the way of debt. Both have current ratios of around 3.5. The key difference is that F&N is priced at 1.5 times its book value whilst Dukang is priced at just 0.2 times its book value.

On this last measure Dukang seems to offer the greater value as well as a significant margin of safety. But the key question for any value investor is whether the company turn around its fortunes and start growing profits.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.