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More value to be unlocked in F&N shares?

Publication Date : 12-10-2012


Perhaps the eagerness of foreign businessmen to pay top dollar for business franchises owned by our local blue chips should serve as a wake-up call.

The message? That we should seriously revalue the gems that lie in our midst.

It took Thai billionaire Charoen Sirivadhanabhakdi to shake things up three months ago when he bought a big chunk of Fraser & Neave (F&N) from long-time shareholders OCBC, Great Eastern Holdings and the Lee Rubber family.

Before that, not a single analyst had the gumption to value F&N shares at $8.88 apiece - the lofty price he forked out.

But now that F&N has successfully sold its stake in Tiger Beer maker Asia Pacific Breweries to long-time partner Heineken for S$5.6 billion, every analyst in town seems to be outdoing one another in bidding up the target price for the stock.

This is notwithstanding the S$8.88-a-share offer Charoen has on the table to buy up the rest of F&N which runs until October 29, and which would have restricted the company's ability to entertain further requests to carve up its sprawling empire in the meantime.

It raises the question as to whether familiarity breeds contempt - to use the old proverb - in explaining the serious undervaluation which F&N appeared to have suffered at the hands of investors for all these years.

In the past, some analysts even applied a discount to the sum-of-the-part valuations in working out the conglomerate's target price, arguing that as a conglomerate, it should be treated more like a closed-end fund which usually trades at a discount to valuations in the market.

The willingness of Overseas Union Enterprises (OUE) to pay S$1.4 billion for F&N's hospitality and serviced residence business is another telling indicator, even though this cannot be pulled off just yet, because of Charoen's takeover offer.

Deutsche Bank analysts Elaine Khoo and Gregory Lui observed in a note that they had valued F&N's serviced residence businesses at S$780 million.

Similarly, there were other reports which suggested that Mr Charoen's F&N bid had priced its hospitality business at only S$600 million.

That makes OUE's offer seem very generous in comparison.

A note on OUE's ultimate owners, the Indonesian Riady family, and their property track record is useful in understanding the context.

The Riadys have long kept their finger on the pulse of the local real estate market, reflected in their shrewd acquisition of a 55 per cent stake in OUE together with Malaysian tycoon Ananda Krishnan in 2006, which then valued the hotel- cum-property group at almost $2 billion.

Now, six years later, OUE was reported to have been approached by potential buyers to buy out its Orchard Road properties, Mandarin Orchard Singapore and Mandarin Gallery, for S$1.7 billion.

No doubt, the Riadys have worked hard to improve the quality of OUE's assets. But the price offered for the Orchard Road properties almost equals the valuation for the entire group in 2006 - a remarkable feat in itself if the sale goes through.

That is not even including other familiar landmarks which OUE owns around the city, such as its 50 per cent stake in OUB Centre, which holds One Raffles Place, and OUE Bayfront, as well as DBS Building Towers One and Two.

It is not unreasonable to assume that the Riadys may know a thing or two more about the true worth of F&N's serviced residence business, spread across Asia, Europe and Australia, than analysts paid to understand these things.

There is one other point worth noting: The revelation by F&N chairman Lee Hsien Yang, together with board members Timothy Chia, Tan Chong Meng and Nicky Tan, that they plan to hold onto their shares unless Charoen's offer turns unconditional.

All these suggest that even at S$8.88 a share, there may still be value to be unlocked in F&N shares. Too bad that it needed a Thai billionaire to make that point loud and clear. For too long, F&N has lain undiscovered as a gem in our midst.


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