F&N Case Study




Company Business Description 2.1.

Roti Xiang Huat Bhd

Roti Xiang Huat Bhd first started as a small in-store bakery at Jalan Ipoh in 1993,  producing variety bread with the help of experienced Malaysia, Soo Ann Siang, who had 28 years experience in the bakery business.Roti Xiang Huat Bhd range of products grew and evolved through the years, becoming better with each step. Leveraging on its brand strength, Roti Xiang Huat Bhd now produces a variety of baked products to satisfy consumers' demands. It offers a wide array of superior bakery products including white, wheat and health  breads, flavoured loaves and snack items like snack cakes, muffins and toasts. Roti Xiang

Huat’s breads are known for their good taste, softness, freshness, nutritive value and oven

- baked aroma. The popular Classic White Bread is zero cholesterol and bromated free, has zero Transfat, and is mineral fortified and vitamin, exceeding DOH recommendations. The competitive advantages

of Roti Xiang Huat’s bread include

 better bread formulation, storage, choice and manufacturing, storage hygiene standards and distribution. It's no

accident Roti Xiang Huat’s bread does not go mouldy quickly or easily. New industry

standards and systems had to be set up and staff recruited and trained for ISO and Halal certification. Free market competition and true entrepreneurship, like genius, is all about 90%  perspiration and 10% inspiration. In the future prospect, Roti Xiang Huat Bhd is focused on product expansion and improvement of distribution efficiency to ensure that only fresh breads reach consumers every day. Roti Xiang Huat Bhd needs to strictly follow its international policy of keeping only fresh stocks on the store shelves. When the products come out of the factory, the deli

very vans leave the production plant as early as 4 o’clock in the morning to bring the

 products to specific locations. Replacing unsold breads in store shelves with only freshly  baked top-quality products during each day of delivery. Roti Xiang Huat Bhd also plans to take over a desired company to expand their business in the future rather than build another business originally. That is because taking over a company can increase its market share or to achieve economies of scale that can help to reduce its costs and thereby increase its profits. It also can boost revenue streams and market

Image credit: Marketing Interactive

This AGM happened in 2015 for F&N’s 2014 financial year and is the very first meeting I fell asleep at. Really. And yes, it was rude of me!

F&N owns branded beverages such as the isotonic drink ‘100 Plus’, soya milk ‘Nutrisoy’ and other flavored drinks branded under ‘F&N Seasons’. In fact, according to the company’s annual report, these few key products are the number one brand in their categories in Singapore and Malaysia.

The kind of businesses F&N owns might explain why I fell asleep: a stable, ‘boring’ business with resilient revenues and earnings regardless of market conditions. F&N has been a stable and predictable investment allowing its loyal shareholders to sleep well for the past 130 years.

Thankfully, I fell asleep only after the Q&A session was over and here are seven key lessons I took away from the AGM:

  1. If you have never invested in a Thai company before, F&N gives you a preview to how a Thai would conduct an AGM. The new owner of F&N is Thai billionaire Chareon Sirivadhanabhakdi. He spoke Thai during the 2014 AGM. Thankfully, his speech was translated to English for the benefit of the English-speaking crowd like me. Sirivadhanabhakdi was quiet and didn’t answer any shareholder questions during the meeting which could be due to the language barrier.
  2. F&N is in the process of finding an independent valuer to reassess the valuation of its 55% stake in Limited after a disagreement on the offer price. Myanmar Brewery markets Myanmar Beer which is the best-selling beer in the country. The initial offer price valued F&N’s stake in Myanmar Brewery at only US$246 million – only 7.5 times earnings. The low price is extremely good value for the buyer but highly unfavorable to F&N the seller. Though F&N will book a one-time profit after the sale, they will lose one of its fastest growing subsidiaries that contributed 38% of F&N’s 2014 earnings before interest and tax (based on a Phillip Securities Research estimate).
  3. Even with the potential sale of Myanmar Beer, the management isn’t worried as they already have a team of senior executives from Asia Pacific Breweries and backing from major shareholders, including Thai Beverage which owns the beer brand Chang, to penetrate the Southeast Asian beer market. Non-Executive Director, Koh Poh Tiong reminded shareholders: “In business, sometimes you win, sometimes you lose. Sometimes when the door closes, another door opens. Not only in Myanmar, but also in Vietnam and Cambodia. So the business opportunities are large. F&N has the capability, experience, and vision to tap onto ASEAN market.”
  4. Printing and publishing is a drag to F&N since it requires large CAPEX, offers cutthroat margins, and is non-complementary to F&N’s core beverage business. However Sirivadhanabhakdi isn’t interested in selling the business division so the management will seek ways to grow it instead.
  5. F&N’s $96 million investment in Fung Choi Media has turned sour after the company was suspended from trading publicly last year. While shareholders will understandably question F&N’s internal investment and auditing process, the management has made the right call in writing off the investment from its balance sheet.
  6. The total capital employed by F&N in 2014 was $2.2 billion which consisted of 92% equity, 5% debt, and 2% other non-current liabilities. (Total not 100% due to rounding.) One shareholder asked: ‘Why is there a huge reliance on equity that translates to a return on equity of only 5.2%? Isn’t debt cheaper than equity?’ The management replied that F&N has generously returned excess capital to shareholders which reduced its net asset value from S$8.8 billion to S$2.2 billion. In other words, F&N’s balance sheet shrank substantially in the past twelve months and it is a much smaller company now than it used to be. If F&N’s NAV drops to a billion dollars, the company might be a target for any opportunistic acquisition.
  7. F&N’s dairy business contributed 45% of total revenue in 2014. But the division has seen earnings before interest and tax decline from $59 million to $56 million despite a 5% growth in sales year on year. The drop in profit was due to rising commodity prices and government price controls in Thailand following a change of government. However, the situation has eased now and the margin for this segment should improve in the near future.

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Rusmin Ang is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Rusmin is on the speaking circuit for CIMB Securities (Malaysia) and has spoken at events in Penang, Sibu and Kuala Lumpur and is the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. Rusmin was actually a former SIAEC scholar who gave up his scholarship and a cushy career to follow his itch of learning how to be a better investor and ultimately lead a life of financial independence. He believes that anyone, even with a regular job, can achieve more financial peace-of-mind by investing intelligently and safely for the long term.

annual general meetingAsia Pacific BreweriesF&NfeaturedFung Choi MediaMyanmarMyanmar Brewery LimitedThai BeverageThailandticker

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