How Singapore’s biggest listed F&B producers have sought to break the mould

How Singapore’s biggest listed F&B producers have sought to break the mould

By: 
Michelle Zhu
04/09/17, 06:46 pm

SINGAPORE (Sept 4): Singapore is well-positioned to serve integrated networks in the F&B manufacturing and processing industry, in addition to enabling capital formation through its stock market, according to Singapore Exchange (SGX) market strategist Geoff Howie.

In the Aug 30 issue of SGX My Gateway, Howie notes that the largest 10 capitalised stocks listed on the SGX that represent industries linked to F&B production have held steady in 2H17 by averaging a marginal decline of just 0.1% in the close of Aug 29, following an average 5.4% decline in 1H17.

These 10 stocks, which are all international businesses that have “significant revenue reach in the region”, booked a comparatively strong 19.5% gain in 2016.

The quarter-to-date average gain of these stocks have since tipped into positive territory with a marginal gain of 0.1% based on the opening prices of Aug 1.

Fraser and Neave (F&N) has notably been the strongest of the 10 stocks in the year to date (YTD), supported by higher dividend income and equity for the nine months ended June 30. Aside from its soft drinks base, the group has ventured into businesses such as beer, dairies, property development and publishing.

On the other end of the spectrum is Japfa, the weakest of the lot in the year thus far with a share price decline of 37.6% as at Aug 30. Its 76.2% decline in profit after tax for 1H17 was attributed to its wholly-owned subsidiary, Japfa Comfeed Vietnam, recording a substantial loss in the half-year under review, due to the continued decline of swine average selling prices (ASPs) which have slid to levels well below operating costs.

While several traditional food and beverage (F&B) manufacturers in Singapore have evolved to expand their role to upstream and/or downstream activities, Howie emphasises that even businesses with established integrated networks are seeking to expand their product breadth and distribution as well, says the strategist.

This is because the manufacturing and processing of F&B products remain a core part of many companies even as they pursue efficiencies of scale, as manufacturing can also consist of several processing stages, such as at Bumitama Agri.

Coming in as the second-largest capitalised of the 10 stocks after Thai Beverage (ThaiBev) is Wilmar International, whose integrated business operations span upfeed stream and breeding, milkstream milking and fattening in addition to downstream processing and distribution.

The strategist also highlights Golden Agri Resources (GAR), First Resources and Olam International as companies involved in a diverse and integrated range of business activities which include processing, cultivating, sales and marketing, among others.

Delfi is another example of an established group whose roots began from a single marketplace in Indonesia, and has since grown to manufacture, market and distribute its own brands of chocolate confectionery products while promoting and distributing products for third parties in Indonesia, the Philippines, Malaysia and Singapore.

Lastly, Howie recalls how Yeo Hiap Seng, once a small soy sauce-producing shop in China, became the first in the world to package its Asian drinks in Tetra Brik aseptic containers using the UHT process – and is now a well-known international name as it expands into more diversified F&B products under the YEO’s brand of products.

“There are multiple examples within this group of 10 F&B producers that have sought to transcend their profile as producers and processors – maintaining or expanding upstream to sourcing and seeding, as well as expanding downstream to marketing, sales and distribution,” writes Howie.

“The long-term trend of established food and beverage businesses diversifying their business streams has also been recently reinforced with Thai Beverage’s purchase agreement for Thailand KFC stores,” he adds.

 

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