Fraser & Neave Holdings’ quarter one financial year 2023 core net profit, which excludes a RM94 million fair value gain on Cocoaland’s privatisation and insurance claims from floods in 2021, met Kenanga Research (Kenanga)’s expectations at 47% and 46%, which were the full-year forecast and full year consensus estimate, respectively.
“The declared DPS of 27 sen (implying a 48% payout) was in line with our expectations of a 50% payout,” added Kenanga Research in a recent report.
Year-on-year, its top line grew 10% as a strong showing from Malaysia more than offset a flattish performance from Thailand. Malaysian operations were spurred by festivities’ demand, continued sales momentum given the full reopening and additional Cocoaland’s contribution.
Thailand was affected by subdued domestic demand and export demand, due to sustained inflationary pressures. Its earnings before interest and tax grew by a stronger 16% as favourable forex hedging and softened food commodity prices more than offset higher marketing and promotional expenses, especially in Thailand.
Quarter-on-quarter, its top line eased 1% due to flattish performance from Malaysia due to seasonality and Thailand due to weak consumer spending on high inflation, which was partially mitigated by discounts and promotions. The discounts and promotions in Thailand resulted in a sharper 4% drop in earnings before interest and tax.
F&N’s earnings prospects remained positive, premised on the full-year impact of the economy reopening, accommodative policies, bigger celebrations of coming festivities, the return of international tourists in both Malaysia and Thailand, and a recovery of export sales driven by China’s reopening.
Meanwhile, the downside risk to margins is a lot more manageable given the weakening of the USD against both the RM (-6%) and Thai Baht (-11%) although the same cannot be said for food commodity prices that could still remain volatile given ongoing geopolitical tensions.
“We continue to like F&N for the strong recovery in demand for its products on the reopening of the economy and international borders, particularly for beverages, ready-to-drink products, out-of-home and HORECA channels, the recovery in its export sales driven by China’s reopening, and the resilience in demand for staple food items amidst the uncertain global economic outlook,” said Kenanga.
However, recent experience pointed to F&B players in general lacking the ability to pass on higher input costs, resulting in margin erosion. Risks identified by Kenanga include the uptick in food commodities’ prices, prolonged supply-chain disruptions, weaker RM and Thai Baht, and sustained high inflation eating into consumer spending power.
