FRASER & Neave Holdings Bhd’s (F&N) proposed integrated development project in Section 13, Petaling Jaya, which has been put on hold for the past four years, will not see the light of day anytime soon, given the oversupply of such properties in the vicinity.
The beverage group proposed a RM1.77 bil integrated development on its 5.14ha plot in 2014, after winning approval for its conversion from industrial to commercial land.
Dubbed Fraser Square, it was supposed to launch the first phase in April 2015. But, this was held back with the soft property market conditions cited as the key factor.
Chief financial officer Tan Hock Beng confirmed that the group’s board is taking a very cautious position on the project.
After its AGM recently, he told FocusM: “If you look at the area, there are many developments that are up and coming, and so the board has decided to take a very cautious stance.
“There is an oversupply of units in the area and the property market in general, so we are going to hold the launch for the time being.
“While there is no such thing as ‘perfect timing’, the project is still on hold for now.” He did not confirm if the delay is indefinite.
Lim (left) and Tan at a press briefing after the company's recent AGM. The F&N board is taking a very cautious stance on its proposed property project in Section 13, Petaling Jaya
A shareholder says the property project issue was also raised during its AGM, but not much clarity was provided there either.
“From my understanding, it’s the Thai shareholder who wants to hold back on all non-core operations,” he says.
F&N’s largest shareholder is Fraser & Neave Ltd, which was acquired in 2012 by Thai Beverage PCL – a vehicle of self-made Thai billionaire Charoen Sirivadhanabhakdi.
As of Nov 30 last year, his company held a 55.5% stake in F&N.
A local fund manager believes it is also not in F&N’s best interest to pursue property projects right now.
“Since their core business is in manufacturing beverages, they should continue to do so. Even if they were to develop the project, what expertise do they have? At the same time, would they even be able to sell the units?
“Of course, developing their land would be beneficial as a source of income, but at the same time, they own it so it’s also not hurting them to sit and wait,” he says.
On whether F&N has put the project on hold due to the high level of capital required, the fund manager says he does not believe so as the group’s cash levels and gearing ratio are at comfortable levels.
According to F&N’s FY17 annual report, as at Sept 30 the group’s cash and short-term deposits stood at RM424.4 mil and its gearing ratio was at 0.5 times.
The project is a joint venture with Singapore-based Frasers Centrepoint Ltd (FCL) and will be developed where F&N Dairies Malaysia’s manufacturing plant formerly stood.
Previous reports say the Fraser Square project will comprise three residential blocks, a retail mall with adjoining hotel and boutique offices, a corporate office building and a block of small office home office units.
The first phase – Trilight Residences – was to comprise 900 residential units with a total gross development value of RM600 mil.
The second phase was slated to comprise a mall, with adjoining buildings designed by FCL. However, this plan is also reportedly being reassessed.
Plans for the first phase of F&N’s Fraser Square project, Trilight Residences, have been shelved since 2014.
Meantime, things are looking up for the group’s Malaysian operations following the completion of its internal restructuring last October.
F&N is focusing on strengthening its export business, which currently contributes some 15% to revenue.
It wants to ramp up the segment’s contribution as the group’s third pillar of growth, after Malaysia and Thailand’s food and beverage divisions.
F&N also set a target to achieve a total RM800 mil in export sales, in which Malaysia and Thailand are each targeted to contribute RM500 mil and RM300 mil respectively, by 2020.
The company exports to 55 countries including Angola, Bahrain, India, Iraq, Mexico and Yemen.
The group recently announced a RM25 mil debottlenecking programme at its dairy plant in Pulau Indah, which will raise canned milk production by five million cases annually. It now produces 16 million cases at the plant.
The capacity expansion in Pulau Indah is expected to add about RM300 mil to the group’s top line.
Similarly, it is also looking at targeted expansions in its plants in Rojana and Pakchong, Thailand. F&N has five beverage plants in Malaysia and two in Thailand.
In a recent report, Kenanga Research says it has a positive view of the debottlenecking capex spend as growing exports will benefit the group’s expansion.
“This also mitigates the group’s exposure to the softer domestic market which is suppressed by poor consumer sentiment.
“Exports now account for about 15% of FY17 sales, and we expect it to improve to around 16-18% in FY18/FY19 from this exercise.
“However, we make no changes to our domestic sales growth assumptions, given the slower-than-expected recovery in consumer sentiment indicators,” it says.
Kenanga Research has a market perform call on F&N. This was downgraded from a buy previously, but with its target price revised upwards to RM29.10 from RM28.85 on slightly better export expectations.
The group also addressed the recent uptick in the ringgit and baht’s performance against the US dollar, saying it was “slightly favourable” to them as F&N is a net importer of raw materials.
F&N’s Tan says this is especially so for its dairy product segment, as it sources its milk powder from Thailand.
“A stronger ringgit is definitely good for the group and its overall business with transactions predominantly done in the US dollar,” he says.
The group, he says, expects international sugar prices to drop, and that the ringgit would continue to strengthen against the dollar.
Group chief executive officer Lim Yew Hoe says F&N is targeting to introduce new products in the coming months to tap into the growing demand for less sugar and healthier products.
However, he did not elaborate further other than saying the products will cater to the mass market.
“These are products with lower sugar content, and customers may find them preferable. We aim to launch the new products in the next few months.
“We’re also addressing the issues of sugar content and health concerns among the public. I hope our consumers will be receptive to our new products, and if we get things right, the sales numbers may be big,” he says.
F&N’s annual report says the group has reduced 24% of its sugar content across its products compared to last year.