Kenanga has maintained a Buy call on the stock with a revised target price of RM29.70 from RM30.71. This comes amidst the company’s quarter results, Fraser & Neave Holdings Bhd’s 9MFY22 normalized PAT of RM265.1m, after excluding a one-time off expense (-RM4.8m) came in below MIDF’s projections but within consensus expectation. 9MFY22 met 62.6% of forecast and 71.1% of the consensus estimate for FY22. The negative variance was attributable to greater-than-expected input costs amid the stronger US dollar and commodities prices along with greater-than-expected flood-related items.
As expected, the group did not declare a dividend for the quarter as the dividend is usually declared in 2Q and 4Q. Improved revenue in 3QFY22 at RM1.1b (+5.5%yoy and +1.0qoq). This was supported by robust Hari Raya sales in Malaysia and
pricing modifications that more than compensated for lower revenue in the F&B Thailand and export markets. On the contrary, PBT fell by – 4.0%yoy to RM114.4m owing to the elevated input costs amid continuous cost pressure from rising commodity prices and a stronger US dollar.
Mixed result in 9MFY22. The group’s top line rose marginally by +3%yoy to RM3.3b, thanks to the stronger festive sales in Malaysia. The normalised PAT declined -26.1%yoy to RM265.1m and normalised PAT margin slid -2.3ppt to 8.4%. This was primarily driven by a rise of RM300m in the cost of products sold (caused by a significant increase in commodity prices), and flood-related cost for damage to the Shah Alam’s operations.
Sales momentum in F&B Malaysia is encouraging, at RM626.8m (+16.0%yoy). This was fuelled by boosted sales from the Hari Raya celebrations and border reopening, effective implementation of marketing initiatives and stronger beverage sales because of elevated out-of-home consumption. The operating profit for F&B Malaysia soared by +194%yoy to RM50.4m. This was supported by an improved margin driven by price adjustments to several products to lessen the impact of the steep increase in input costs, and lower transportation cost due to the partial utilisation of the ASRS (automated storage retrieval system) in its warehouses.
F&B Thailand was impacted by higher input costs. For 3QFY22, F&B Thailand reported a reduced operating profit (-
40.5%yoy) of RM58.7m in line with the lower revenue (-5.4%yoy) at RM490.1m. The negative performance was caused by
the rise in product price which resulted in poorer domestic sales for evaporated milk and export sales and Thai Baht
depreciation which resulted in a less favorable forex conversion.
The valuation is based on a revised PER of 25.8x (its 2- year historical mean) pegged to FY23F EPS of 115sen. The dividend yield is estimated at 2.7%. MIDF continue to like F&N underpinned by its: (i) consistent product innovation to meet consumer demand and taste; (ii) recent proposed acquisition of Ladang Permai Damai and Cocoaland, which could fuel its future earnings growth; and (iii) effective cost management to mitigate the effects of rising commodity and logistics costs. Key downside risks include: (i) raw material shortage, (ii) further depreciation of RM and Thai Baht against USD which could put more pressure on costs and (iii) a sharp increase in commodity prices which could impact the cost and profitability of its product
