Oct 17, 2012

Singapore - F&N effect on F&B stocks

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Call it the Fraser & Neave (F&N) effect. Since the conglomerate entered the spotlight as the subject of an intense takeover battle, other food and beverage-related stocks have soared.

The F&B theme spiced up further yesterday as investors nibbled on more counters, leading many to scale fresh year highs.

Shares of Yeo Hiap Seng, Khong Guan Flour Milling, Auric Pacific Group, Bonvests Holdings and Super Group all rose to new highs while other food-related counters notched big gains.

The relentless rise in some of these stocks in the absence of plausible explanations - other than the F&N effect - has confounded some market watchers.

"There is nothing much actually happening with these firms to warrant the rise," said a remisier.

Not everyone agreed. OSK- DMG research head Terence Wong said the battle for F&N and privatisation of Cerebos Pacific, maker of Brand's Essence of Chicken, have highlighted the value of food and beverage firms earlier not on investors' radar.

F&N includes brewing, soft drinks and food businesses.

"It's a choppy year for the stock market, and consumer staples, given their defensive earnings, have become attractive," said Wong.

While investing in food and beverage firms on the grounds that they are resilient in tough times may be hard to fault, the extent of the rise seems overblown.

The broader market saw no such exuberance, trading range- bound yesterday as the Straits Times Index (STI) gained a paltry 0.1 per cent to close at 3,046.81.

"There's definitely a dose of speculation here," said Wong.

Soft drinks and property firm Yeo Hiap Seng continued its ascent for the sixth straight day on expectations that it is a potential buyout candidate. It gained 32 cents, or 6 per cent, to hit another record high yesterday of S$5.69.

Wheat flour supplier and biscuit maker Khong Guan rose eight cents, or 3 per cent, to S$2.68. It had gained a whopping 49 per cent on Monday.

Shares of Synear Food Holdings inched up by 0.4 cent or 2.2 per cent to a year's high of 18.9 cents, higher than the exit offer of 18.6 cents a share made by its main shareholders to privatise the Chinese quick-freeze food maker.

Other related counters also enjoyed the attention. Food Junction Holdings added 0.8 cent or 4.4 per cent to 18.8 cents. Food Empire Holdings rose 4.5 cents or 10 per cent to 50 cents.

Bonvests surged 10 per cent, or 10.5 cents, to a high of S$1.17, while Super Group gained 10 cents to hit a high of S$2.52.

The sharp rises have led these counters to far outperform the key STI, which has risen 15 per cent so far this year.

A similar frenzy on food-related counters took hold 10 years ago. Then, it involved shares of Thai Village, United Foods, Tastyfood, Food Empire, TungLok, Tsit Wing International and Super Coffeemix. But a glaring difference is that these counters chalked up heavy turnover then and hogged the most actives list.

Dealers said the thin trading volume behind the sugar rush lately in these food counters - some of which are illiquid and have long been ignored - should provide retail investors with some food for thought. "Caveat emptor (buyer beware) should rule for those looking to jump in," said an analyst.

US$1 = S$1.22

Anita Gabriel

Business & Investment Opportunities 
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