Fraser & Neave Holdings intends to grow its top line via boosting its sales volume instead of raising prices. It intends to lift its ROA by optimising its assets while capping capex.
It is investing in a manufacturing plant in Cambodia given the market’s growing demand there.
Kenanga Investment Bank (Kenanga), in its Company Update today (May 6), said they maintain their earnings forecasts, TP of RM38.25 and an OUTPERFORM call on F&N.
F&N’s recent post-results briefing revealed :
1. Growth through sales volume while capping prices. F&N intends to grow its top line via boosting its sales volume instead of raising prices. It is driving its sales volume by:
• broadening its product offerings (such as the introduction of gummies with natural fruit juice);
• collaborations (such as the “Garfield Movie x Magnolia Campaign”;
• selling directly to end-users, for instance, Teapot condensed milk to hawkers in Thailand, which also comes with a loyalty programme allowing the hawkers to collect points to redeem prizes;
• special event-driven marketing campaigns, such as the Mother’s Day campaign for Nestle’s Bear Brand sterilised milk products (F&N manufactures and distributes Bear Brand products in Thailand and Laos under a license agreement with Nestle);
• strengthening customer engagement (via interactive advertising through the Gempak 2.0 and Beli & Menang campaigns); and
• boosting its exports (of which proceeds denominated in hard currencies could act as a natural hedge against forex fluctuations).
This will be continuation from 1HFY24 during which its top line grew 11% YoY driven mainly by sales volume (as it did not raise prices) on the back of effective marketing strategy during the festive periods (such as 100Plus CNY festive campaign and Nona’s Seenak Rasa Semeriah Raya campaign).
Boosting ROA. In addition, F&N intends to lift its ROA by optimising its assets while capping its capex. Over the past five years, it has invested close to RM1.5b in an automatic storage retrieval system at its Shah Alam plant, a liquid milk plant in Thailand, a drinking water production plant in Kota Kinabalu, and PV panels at various sites.
F&N believes that there is potential for F&N believes that there is potential for margin expansion through enhanced operational efficiencies across its businesses. In 1HFY24, its ROA already improved to 11% (vs. FY23: 9.5%). It has set a target of raising the number to the mid-teens to high-teens over the next three years.
Strengthening its presence in Cambodia. F&N is investing in a manufacturing facility for dairy products in Suvannaphum Special Economic Zone for c.USD37.5m (RM179.5m). The manufacturing facility will produce sweetened beverage creamer in can and pouch and is expected to commence operations in 1QFY26. This is a natural progression spurred by growing exports to Cambodia, which currently contributes an estimated 5% to 7% to the group’s total revenue.
Kenanga continues to like F&N for: (i) its earnings defensiveness given the stable demand for essential food items despite high inflation and an uncertain global economic outlook, (ii) the rising popularity of ready-to-drink products where F&N has a strong presence, and (iii) proxy to the recovery of domestic consumption and the return of tourists in Thailand.
