Fraser & Neave Holdings Bhd (F&N) outlook appears promising, underpinned by robust demand and its focus on the Halal food and dairy segments, with encouraging first quarter results ended Dec 31, 2023 (1QFY24).
“Its outlook is bolstered by the normalization of economic activities and consumer behaviour, along with the resurgence of international tourism in Malaysia and Thailand, which is expected to boost export sales.
“The group’s efforts to consolidate the manufacturing processes of its entire food business, are anticipated to enhance production capacity and streamline operations,” Kenanga Research said in its Results Note today (Feb 2).
Aside from that, F&N’s 1QFY24 results beat expectations thanks to a favourable product mix, lower input cost, and improved efficiency, t Kenanga said.
“Its first quarter core net profit of RM166 million excluding RM4.4 million loss arising from the non-operating items related to the previous flood incident beat expectations, coming in at 34% and 32% of our full-year forecast and the full-year consensus estimate, respectively.
“No dividend was declared during the quarter, as expected,” it said.
Consequently, the research house raised its FY24 and 25F net profit forecasts by 11% and 10%, respectively, imputing higher turnover and raising our margins assumptions.
It also lifted its target price (TP) by 10% to RM33.80 from RM30.70, based on unchanged FY25F targeted PER of 22x, consistent with the industry’s average forward PER.
“There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us. We also maintained our OUTPERFORM call.”
For the full financial year, Kenanga expected the group to distribute a total dividend of 77 sen.
“This implied a dividend payout ratio of 51%, consistent with its historical trend, and translates to a dividend yield of 2.8%.
“Year-on-year (YoY), F&N’s revenue grew by 9%, with Malaysia sales rising 7% and Thailand sales increasing 13%.
“This growth was driven by stronger market penetration in Malaysia’s dairy and food segments, and a full quarter’s contribution from Cocoaland.
“Its Thailand’s performance benefited from increased domestic sales, stronger exports, and favourable currency exchange rates.
“The group’s earnings before interest and taxes (EBIT) grew by a stronger 57% thanks to a better product mix, lower input cost, and improved operational and supply chain efficiencies,” it added.
The research house said it continues to like F&N for the robust demand recovery in beverages and ready-to-drink products post pandemic, strong export sales, the steady demand for essential food items, and improved outlook in the Thailand market.
The risks to Kenanga’s call include an uptick in food commodities prices, sustained high inflation eating into consumer spending power, and downtrading by consumers.
