The Source Of Fraser and Neave Limited’s Future Growth: Malaysia

Fraser and Neave Limited (SGX: F99) was once one of the largest conglomerates in Singapore’s stock market.

But, after the spin-off of its property business a few years ago through the listing of Frasers Centrepoint Ltd (SGX: TQ5), the company was left with a strong food & beverage business and a struggling publishing and printing business.

Now, most of Fraser and Neave’s value is located in its stake in its Malaysia-listed subsidiary, Fraser & Neave Holdings Bhd (KLSE:3689.KL). And, Fraser & Neave Holdings is likely to be the source of growth for its parent going forward.

Fraser & Neave Holdings recently opened a new bottling manufacturing line that cost about RM45 million. The new line can boost the volume of the company’s bottle production by about 40% per year. The bottling line is also fully automated, and so could improve production efficiency by as much as 12.5%.

Fraser & Neave Holdings has been seeing strong growth in its top-line and bottom-line over the past few years. From its FY2012 (fiscal year ended 30 September 2012) to FY2016, the company has enjoyed a 7% and 8.9% annual growth rate in revenue and net profit, respectively.

However, due to the demerger of Frasers Centrepoint, other restructuring exercises, and the struggling publishing business, Fraser and Neave actually saw its revenue fall from S$3.6 billion in FY2012 (the company has the same fiscal year as Fraser & Neave Holdings) to just S$2.0 billion in FY2016. Its operating profit declined even more drastically over the same period, from S$455 million to S$115 million.

It might be slightly more difficult to understand Fraser and Neave as compared to Fraser & Neave Holdings due to the former’s multiple businesses. But, if we peel back the complexity and focus on Fraser and Neave’s core asset – which is actually Fraser & Neave Holdings – it is comforting to note that the company’s food & beverage business is progressing well over the past few years.

Fraser and Neave is currently trading at 29 times trailing earnings and offers a 2.1% dividend yield. Fraser & Neave Holdings, meanwhile, is has a price-to-earnings ratio of 22 and offers a 2.5% dividend yield.

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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 writer Stanley Lim owns shares in Frasers Centrepoint.