Fraser& Neaver originally found in Singapore is
manufacturing beverage and dairy product. With a strong brand building in the
past, F&N has established a lot of reputation in terms of its product lines
such as isotonic drink 100 plus which is used to sponsor countless outdoor
events and gain tremendous popularity. Aside of its own production, F&N go
a step further by acquiring Nestle’s Dairy line in Thailand to own the right to
produce all kind of canned milk to expand its possible market expansion via
Indo-China route. In addition of strong branding and product line, F&N has also decreased external pressures from
strong competitor by adapting to its acquisition strategy. At the same time,
the barriers of entries are high enough to stop potential competitors from
emerging as high capital is needed for all the plants and machineries. In
F&N case, the company owns almost RM1 billion worth of plants and equipment
with an average annual investment of over RM200 million which is a gigantic amount.
In any industry that is related to dairy product especially
canned milk, F&N company encounter the risk of defame due to milk scandals
which might result corrections in short term. Also, with a huge export
business, although F&N is able to leverage on its order size, dealing with
different regions means more credit transaction and hence lack of smooth cash
flow. Competing in an aggressive industry, marketing campaign is a much and
must be held in the most innovative and extravagance ways which consumes almost
35% of the company’s gross profit annually.
With the company’s extreme cash fluctuations, we take EPS as
our profitability reference this time. Taking out 2010 and 2011 where the
company undergoes restructure and disposed its subsidiaries, the EPS is growing
steadily throughout the 8 years with an annual compounded rate of 5.44%. Both
ratios are also up to satisfactory level. With intrinsic value estimated at RM5.47
after 15% Margin of Safety, the company is seen to be overvalued by the market
in a huge margin. It is a great company to purchase in with the matter of time.
Stock: F&N Code: 3689
Stock: F&N Code: 3689
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