Fundamental Analysis for FRASER & NEAVE HOLDINGS BHD

Date of Analysis: Company Name: Stock Code (Bursa): Stock Code (Bloomberg): Stock Code (Reuters): Price as of Analysis: Stock Grade 7-Jun-11 FRASER & NEAVE HOLDINGS BHD F&N FNH:MK FRAS.KL 19.36 Dividend Cash Cows Main Y CONSUMER PRODUCTS Industrial PE: 20.7 Rolling EPS: 2.15 Board: FBMKLCI: Sector:

Financial Statements: Year over year, Fraser & Neave Holdings Bhd has been able to grow revenues from 3.3B to 3.6B. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 69.49% to 67.50%. This was a driver that led to a bottom line growth from 224.4M to 695.3M.

1 - History of Consistently Increasing Earnings, Sales & Cash Flow

1.1. Income Statement -> Sales Revenue & Net Income After Tax increasing in the past 4 years. 1.2. Cash Flows -> Net Cash from Operations increasing in the past 4 years. 1.3. Growing/consistent revenue in EPS, revenue and net profit in the last 4 quarters. 1.4. The current quarter's EPS is up more than 15% from the same quarter the year before.

2 - Sustainable Competitive Advantage

2.1. Strong brand, monopoly or barriers to entry 2.2. Gross Profit Margin (> 40%) & Net Profit Margin (> 10%) high & consistent 2.3. Consistently high ROE > 15%

3 - Strong Future Growth Drivers

3.1. Able to deliver double-digit growth in next 3-5 years 3.2. LT Growth Rate is positive

4 - Conservative Debt
4.1. Long term debt < 4 times Net Profit 4.2. Debt/Equity Ratio < 1 4.3. Current Ratio > 1

5 - Positive Accounting KPI & Ratios

5.1. DUE-D Basic > 70%

5.2. FQA Score > 60% 5.3. SWC Score > 7% p.a.

5.4. ROIC > 15%

6 - Healthy Cash Flow

6.1. Working capital increase slower than sales 6.2. Short & declining "Cash Conversion Cycle" 6.3. Free Cash Flow / Sales > 5%

7 - Management is Holding/Buying Stock

7.1. Is key management holding/buying large proportion of stock.

8 - Risks are Managed

8.1. Understand the risks of the company and how it is managed.

9 - Price is below Intrinsic Value

9.1. Price is below Intrinsic Value (Bonus: Price can double within 3 years)

10 - Stock Price Breaks out of Consolidation/Dip on an Uptrend

10.1. Stock price breaks out of consolidation/dip on an uptrend and above 20 and 50 moving averages on monthly chart.

1 - History of Consistently Increasing Earnings, Sales & Cash Flow

1.1. Income Statement -> Sales Revenue & Net Income After Tax increasing in the past 4 years. RM ('000) TOTAL REVENUES NET INCOME
4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2006 2007 2008 2009 2010

2006 1,943,630 142,827

2007 2,865,068 152,871

2008 3,591,204 166,845

2009 3,737,063 224,432

2010 3,637,726 695,291

0.600310078 0.900465116

1.800930233
TOTAL REVENUES NET INCOME

1.2. Cash Flows -> Net Cash from Operations increasing in the past 4 years. RM ('000) NET CASH FROM OPERATIONS
600,000 500,000 400,000 300,000 200,000 100,000 0 2006 2007 2008 2009 2010

2006 289,674

2007 67,743

2008 333,217

2009 402,141

2010 511,414

NET CASH FROM OPERATIONS

1.3. Growing/consistent revenue in EPS, revenue and net profit in the last 4 quarters.
1200000 1000000 800000 600000 400000 200000 0 3/1/2010 6/1/2010 9/1/2010 12/1/2010 3/1/2011 1003177 990251 1028026 1009468 Turnover Trend 652139 Net Profit Trend

EPS Trend
150 100 50 0 Quarter 23.9 Mar-10 19.7 Jun-10 30 Sep-10 Dec-10 36.8 Mar-11 129.7

1.4. The current quarter's EPS is up more than 15% from the same quarter the year before. EPS Growth: 54%

2 - Sustainable Competitive Advantage

2.1. Strong brand, monopoly or barriers to entry 1. Does it have a monopoly situation ? 2. Does it have a strong leading brand? 3. Does it have a high barriers to entry? 4. Does it have market leadership? NO Strong High Strong

2.2. Gross Profit Margin (> 40%) & Net Profit Margin (> 10%) high & consistent

Gross Profit: Profit After Tax: Gross Profit Margin: 32%

1,182,200 695,291

Sales Revenue: Minority Interest: Net Profit Margin: 19%

3,637,726 294

2.3. Consistently high ROE > 15%

ROE
45 40 35 30 25 20 15 10 5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

3 - Strong Future Growth Drivers

3.1. Able to deliver double-digit growth in next 3-5 years Summary of analyst reports on company and industry projections: 0

Summary of CEO message on future prospects:

3.2. LT Growth Rate is positive LT Growth Rate: 35.09

4 - Conservative Debt
4.1. Long term debt < 4 times Net Profit Long Term Debt: Long Term Debt < 4 times Current Net Earnings (After Tax): 4.2. Debt/Equity Ratio < 1 0.22 150,000

Debt/Equity Ratio:

0.65

4.3. Current Ratio > 1 Current Ratio (MRQ): 2.09

5 - Positive Accounting KPI & Ratios

5.1. DUE-D Basic > 70% DUE-D Basic: 5.2. FQA Score > 60% FQA Score: 5.3. SWC Score > 7% p.a. SWC Score: 5.4. ROIC > 15% 7.93% 98% 100%

EBIT (1-Tax rate%) Total Equity Short Term Debt Long Term Debt Cash & Equiv ROIC
90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2007

2007 218,233 1,276,700 210,000 83,100 207,799 16.02%

2008 246,375 1,317,200 0 359,400 183,643 16.50%

2009 298,949 1,409,400 97,600 360,400 187,853 17.80%

2010 777,584 1,796,800 0 150,000 939,335 77.18%

ROIC

2008

2009

2010

6 - Healthy Cash Flow

6.1. Working capital increase slower than sales 2007 2,865,068 573,300 567,638 666,708 474,230 73.04 72.32 84.94 60.42 2008 3,591,204 25% 437,900 617,393 656,170 399,123 -15.84% 44.51 0.60 66.69 -21.58 2009 3,737,063 4% 482,300 544,567 696,510 330,357 -17.23% 47.11 0.90 68.03 -20.02 2010 3,637,726 -3% 343,700 528,035 798,497 73,238 -77.83% 34.49 1.80 80.12 -43.83

Sales Revenue Sales Growth YOY Inventory Accounts Receivable Accounts Payable Working Capital Working Capital Growth YOY Inventory Days Days Receivable Days Payable Cash Conversion Cycle
40% 20% 0% -20% -40% -60% -80% -100% 2007

2008

2009

Sales Growth YOY Working Capital Growth YOY

6.2. Short & declining "Cash Conversion Cycle"

80.00 60.00 40.00 20.00 Cash Conversion Cycle 0.00 -20.00 -40.00 -60.00 2007 2008 2009 2010

6.3. Free Cash Flow / Sales > 5% Free Cash Flow/Sales: 30.12%

7 - Management is Holding/Buying Stock

7.1. Is key management holding/buying large proportion of stock. Shareholding Analysis:

FRASER AND NEAVE LIMITED, SKIM AMANAH SAHAM BUMIPUTERA and EMPLOYEES PROVIDENT FUND BOARD are majo

8 - Risks are Managed

8.1. Understand the risks of the company and how it is managed. Risk Management: 0

9 - Price is below Intrinsic Value

9.1. Price is below Intrinsic Value (Bonus: Price can double within 3 years) Valuation Method Discounted Cash Flow Dividend Discounted Growth Rate 5Y - 35.09 3Y - 63.6 29.60 48.71 12.5/3 17.60 PE PE Model PEG Estimated IV: Discount from IV: From From 19.3 41.50 0.47 15.48 33.28 0.58 16 To -21.0% To 7.4 Sector Avg. PE 15.91 44.51 1.22 0.44 18 -7.6% 12.5/2 13.00 Remark

Discount from IV is not more than 20% Based on PEG, it is currently undervalued.

10 - Stock Price Breaks out of Consolidation/Dip on an Uptrend

10.1. Stock price breaks out of consolidation/dip on an uptrend and above 20 and 50 moving averages on monthly char