We are downgrading FNN to Hold, from Buy. It was announced that The Coca-Cola Company (Coke) will not be renewing its bottling agreement with F&N Berhad, FNN’s 58% owned Malaysia’s subsidiary, from 26 Jan 2010. While bottomline impact is relatively minimal to FNN, this development does not bode well in the near term given that the Group is attempting to build up its F&B business in the face of receding contribution from its property business.

Non-renewal of Coke bottling agreement. The Coca-Cola Company (Coke) will not renewing its Bottler's Agreement with F&N Berhad (FNHB), FNN's 58%-owned subsidiary in Malaysia, when it expires on 26 Jan 2010. Revenue from Coke products (Coca-Cola and Sprite) is about RM$421m, which is about 35% of FNHB's soft drinks revenue. The other brands, such as 100Plus, F&N carbonated drinks, Seasons and Fruit Tree accounts for about the other 65% of soft drinks revenue.

Small impact to Group but untimely event. We estimate that Coke's products account for 4% of its revenue and c.3% of FNN Group’s operating profit contribution. While the impact seems to be relatively minor to FNN, the termination of the agreement in Malaysia does not bode well for the Group given that contribution from its property is receding and focus is for the defensive F&B division to provide support in current times.

Downgrade to Hold. Our TP is revised down to $2.76 on a 30% discount to our RNAV of $4.46. This equates to 0.7x P/B, which is the average trading level from 1998 to 2003 (prior to the equities bull market).