Fraser and Neave’s growth to grind to a halt as Myanmar Brewery exits

Topline growth will drop to 3%.

Fraser and Neave’s growth will be stunted in coming quarters after it lost the battle for the incredibly profitable Myanmar Brewery.

F&N yesterday reported its FY14 results, revealing that group revenue grew 5.5% year-on-year to $2.4b, on back of a 28% growth in beer and a marginal 2% growth in soft drinks. F&N reported a strong topline growth of 6% for FY14.

However, CIMB warns that given the big growth rate disparity between its beer and soft drink businesses, the group’s topline growth could plunge to 3% once Myanmar Brewery exits.

“With MBL, the potential growth rate would accelerate ahead, as the composition of MBL (as part of F&N) grows over time. Management suggests that losing MBL is not necessary fatal. We sense that there are plans to re-launch the beer business outside of Thailand next year, now that the two-year moratorium on Heinenken is ending. This may include renewed ventures to Myanmar, even if F&N sells its stake in MBL,” noted CIMB.

Earlier this month, F&N’s battle for Myanmar Brewery ended after arbitrators ruled in favor of Myanmar Economic Holdings. Given the decision, MEHL now has the rights to acquire F&N’s 55% stake in Myanmar brewery.

“Results is less important. The key driver of share price today is the price the MEHL will pay for F&N’s 55%-stake in MBL. The strong performance of MBL would have attracted a high valuation multiple for F&N, if only MBL could stay within the group. With the arbitration ruling in favour of MEHL, and a low likelihood that MEHL will pay a full price (22-25x FY15 P/E) for MBL, we cannot bring ourselves to take a more bullish view now,” noted CIMB.

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