F&N
KUALA LUMPUR: Fraser & Neave Holdings will continue to reinvest into its business and will also focus on expanding its market share in the ready-to-drink segment by launching new healthier choice products, says CIMB Equities Research.
“F&N also said it would be more focused on upsizing its product offerings (i.e. instead of 24 cans, F&N will offer 28 cans to consumers at the same price) rather than handing out discounts.
“This has proven to be effective during its CNY 2018 campaign and will be seen in its upcoming Hari Raya campaign,” it said on Monday.
Following the release of its 1HFY9/18 results, F&N hosted a briefing chaired by group CEO Lim Yew Hoe and CFO Tan Hock Beng.
Overall, the group’s 1HFY18 sales remained flat on a year-on-year basis while operating profit fell 17.2% year-on-year.
The former was a result of an intensified competitive landscape in Malaysia where its beverage segment still faces fierce pricing pressures. This offset the double-digit growth from its exports (albeit from a low base) as well as sales growth from Thailand.
The 1HFY18 earnings before interest and tax was mostly impacted by higher production and input costs, mostly stemming from milk powder, sugar and packaging costs (i.e. tin and resin costs).
F&N recorded healthy exports sales growth for 1H18, up 16% year-on-year for F&B Malaysia and 15% year-on-year for F&B Thailand.
All in, export sales contributed RM333.4mil or 16% to its total 1H revenue, and 15% of its total operating profit.
“We think F&N is on track to hit its export sales target of RM800mil by FY20F, and with the strategic capacity expansion at its Pulau Indah plant coming on board, we think its exports will continue on a positive momentum as it continues to leverage on the rising interest from halal markets (i.e. Middle East),” it said.
F&N also shared that while its milk-based commodity requirements has been hedged up until Sep 2018, it will continue to monitor the prices of its raw materials and will not hesitate to hedge for more than a year should raw material prices continue to trend downwards.
F&N also highlighted that its subsequent quarters should see an uptick in earnings given the lower sugar price environment. 1H18 earnings were impacted by higher sugar prices and increased packaging costs (i.e. resin and tin prices).
“We retain our Hold call as we think the stock if fairly valued for now at forward FY18/19F price-to-earnings (P/Es) of 30.5 times/29 times (+2 standard deviation of its 10-year mean P/E).
“We think the stock’s valuations are justified given F&N’s market leadership position in Malaysia, resilient earnings profile, and strong brand name. Estimated FY18-20F dividend yields of 2.3%-2.5% should lend support to its share price,” it said.
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