FRASER & NEAVE / THAI BEVERAGE

S$8.58-FNN SP / S$0.59-THBEV SP

Shareholders of Fraser and Neave (FNN) approved

the previously announced capital reduction exercise

of approximately S$4.7 billion during their

extraordinary general meeting on 28 June 2013.

 Shareholders are expected to receive S$3.28 per

share at the closing of this exercise.

 We believe that this would be positive for both

shareholders of FNN and its majority shareholder

Thai Beverage, in view that this exercise would unlock

value for shareholders of FNN and Thai Beverage. In

particular, this would bring significant improvement

to Thai Beverage’s balance sheet, as the capital

distribution exercise is expected to bring down its

net debt to equity ratio from 1.2X to 0.8X, given its

28.6% stake in FNN.

 Separately, FNN also said that the company would

appoint advisers to study and review alternative

strategic options available to the Company, including

a possible segregation of its property-related

businesses from its non-property related businesses.

This would be very encouraging for both shareholders

at FNN and Thai Beverage as well. Specifically,

concerns surrounding Thai Beverage Pcl and TCC

Assets’ intentions to keep FNN listed and

corresponding worries about the lack of initiatives to

re-structure FNN to create synergies for the overall

group would be dissipated.

 Currently, Thai Beverage trades at consensus FY14

P/E of 15.7X, representing a 12% discount to FNN’s

corresponding FY14 P/E multiple of 17.9X. Going

forward, we hold the conviction that Thai Beverage’s

valuation discount relative to FNN could potentially

narrow, in anticipation that we could see greater

synergies between FNN and Thai Beverage’s regional

businesses.