Fundamental-wise, though, nothing much has actually changed for F&N Malaysia, whose business interests include soft drinks, dairy products and property.
Earnings outlook for the company over the medium term remains lacklustre, according to most analysts. This is especially so since F&N Malaysia lost the Coca-Cola franchise in September last year.
To recap, F&N Malaysia and Coca-Cola were previously partners in a binding long-term agreement, under which F&N Malaysia would bottle and distribute Coca-Cola's products in Malaysia. Coca-Cola would return the favour by bottling and distributing F&N products in Singapore.
But ever since the break-up, F&N Malaysia has had to deal with a significant dent in its sales volume, as Coca-Cola used to contribute to at least one third of the company's total volume.
While F&N Malaysia's own brands such as 100 Plus and Seasons have been doing well, their sales growth have not been sufficient yet to make up for the company's loss of the Coca-Cola franchise.
In addition, F&N Malaysia is also challenged by the rising commodity prices such as that for sugar, whey and skimmed milk, and these have been eating into its profit margins. Income from its property division, on the other hand, is still not meaningful enough due to the company's limited exposure to the sector.
So, based on fundamentals alone, one can perhaps argue that F&N Malaysia's share price is overvalued at its present level that is trading at about 27 times its historical earnings, compared with the industry average of around 17 times earnings.
As it stands, most analysts have a “sell” call on the counter; the highest target price for F&N Malaysia based on the analysis of five research houses polled by Bloomberg is only RM18.10, and the lowest target price for the counter is only RM13.30.
Analysts whom StarBiz speaks to say unless and until a bidding war breaks out for the group's beverage business, they are unlikely going to upgrade their rating on F&N Malaysia.
As CIMB Research puts it in its report, in the absence of an official announcement on the potential merger and acquisition (M&A), it would maintain its “underperform” call on F&N Malaysia. It says an M&A premium will only be ascribed to F&N Malaysia's shares if a bidding war for the group's beverage business is confirmed.
Well, it's still early days.
It was only last Thursday that Bloomberg had reported about Coca-Cola exploring a bid for F&N Singapore's beverage business. Citing several unnamed sources with knowledge of the matter, the international news wire agency said the deal could value F&N Singapore's beverage business, which included its dairy and soft-drinks operations that are held under F&N Foods Pte Ltd and F&N Malaysia, at US$3bil (RM9.39bil).
A week earlier, Bloomberg reported about Kirin also mulling a bid for the same business, basing it on information revealed by three unnamed sources, who, it said, had “knowledge” of the matter. Kirin is presently the second-largest shareholder in F&N Singapore, with a 14.96% direct stake in the latter.
Both Coca-Cola and Kirin were said to have been waiting on the sidelines for F&N Singapore's beer-business sale to go down smoothly for Dutch brewer Heineken NV first before launching their bids for the non-alcoholic segment.
And the beer deal did go through, after F&N Singapore announced late Friday that it would accept Heineken's offer of S$5.1bil (RM12.78bil) to buy out its entire 39.7% stake in Asia Pacific Breweries Ltd, the producer of more than 40 beer brands, including Tiger, in this region.
Now, CIMB Research has painted three scenarios that will likely happen in the event of a bidding war for F&N group's beverage business. The first is for the bidder to aim for control of F&N Singapore, as that will then ultimately give the bidder control of F&N Malaysia.
The other two, which are “cheaper” alternatives, will be for the bidder to go for F&N Singapore's 56.32% entire stake in F&N Malaysia, or for the bidder to just launch a direct general offer for F&N Malaysia.
Whichever route is chosen, the winner will definitely get crowned as the biggest soft-drinks player in Malaysia. This is because, according to Euromonitor, F&N group still commands the biggest soft-drinks market share in the country, leading Coca-Cola at second place and Permanis Sdn Bhd (a wholly-owned subsidiary of Japan's Asahi Group Holdings Ltd and distributor of Pepsi brand, among others) at third.
It's a highly competitive environment; it won't be surprising that giant companies will invest in various strategies to solidify their market position and quench their ever-growing thirst for a bigger slice of the beverage market in any parts of Asia, including Malaysia.
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