Fraser & Neave Holdings (F&N) recorded a core PATANCI of RM117.7 million for 1QFY23. This was after taking out an RM85.2 million one-time item. The result came in within the Street’s full-year FY23F estimation, which accounts for 27.1% of MIDF’s and 26.2% of the consensus’ full-year projection. However, no dividend was declared during the quarter.
Solid revenue growth. Sequentially, F&N’s core PATANCI increased by +20.0% QoQ (qurater-on-quarter) to RM111.7 million in 1QFY23, in tandem with higher revenue of RM1.2 billion in 1QFY23 as compared to RM1.1 billion in 4QFY22.
The upward momentum was contributed by stronger festive sales and export sales from F&B Malaysia (+18.8% QoQ) as well as additional revenue contributions from Cocoaland following completion of the acquisition on 4 Nov 2022.
On yearly basis, the group’s core PATANCI dropped -4.1% YoY (year on year) to RM111.7 million in 1QFY23 despite higher revenue growth of +10.1% YoY to RM1.2 billion. This was primarily caused by F&B Thailand’s reduced operational profit and increased finance costs due to greater borrowing.
F&B Malaysia outperformed F&B Thailand. F&B Malaysia recorded an increased operating profit of RM70.4 million (+41.5% QoQ and +211.2% YoY). This was mostly caused by a boost in revenue from seasonal sales, export sales, contributions from Cocoaland, and improved margins for dairy and beverage products. On the other hand, F&B Thailand’s lower operating profit of RM67.9 million (-9.5% QoQ and -15.6% YoY) was due to weaker export volume to Indochina.
Greater loans and borrowings. The loans and borrowings increased from RM246.8 million in 4QFY22 to RM710 million in 1QFY23 to fund the acquisition of Cocoaland and Ladang Permai Damai.
Revised earnings projection for FY23F-24F.MIDF Research has raised its earnings forecast for FY23F by +5.4% and FY24F by +7.2%. This is after accounting for strong sales brought on by the return of international visitors which could boost out-of-home beverage consumption. The research house also factors in lower raw material costs due to falling global commodity prices.
Hence, MIDF has reiterated BUY rating on F&N with a higher target price (TP) of RM33.50 (from RM29.70). It has raised its TP to RM33.50, based on a revised PER of 23x (5-year historical mean) pegged to FY24F EPS of 146.9sen.
The research house is optimistic about F&N’s outlook underpinned by factors such as, the increase in out-of-home consumption benefitting from the return of international tourists to Malaysia and Thailand after the reopening of the border; additional revenue from the integration of Cocoaland; transformation of Ladang Permai Damai into an integrated dairy farm and crop plantation; declining global commodity prices that may improve margin; and normalising export sales to China after the reopening of China’s border.
F&N is currently trading at a compelling FY24F PER of 17x vs. its 5-year average mean PER of 23x, while offering a dividend yield of 2.6% in FY23F.
Key downside risks are raw material shortage and a sharp increase in commodity prices which could impact the cost and profitability of its product.
