CGS International (CGS) raised their revenue growth assumptions for Fraser & Neave Holdings (F&N) after a stronger-than-expected performance in 1HFY9/24, with a new FY23-26F revenue CAGR of 7.0%, vs 4.7% previously.
1HFY24 group F&B revenue growth (10% yoy) was better than CGS expected after a very strong FY23 revenue growth of 11.9% – even after taking into account the earlier Hari Raya sales season in 2024 and the fact that Cocoaland’s accounts were consolidated from Nov 2022 (i.e. 2 months of 1QFY23).
While CGS expects seasonality to weigh on 2HFY24’s revenue growth, the start of its dairy farm operations in early-2025 should be an added catalyst to FY25F revenue growth.
In the meantime, cash handouts to lower income households, higher civil servant salaries (from 2025) and EPF Account 3 withdrawals are all incremental positives for F&N’s revenue trajectory, CGS said.
Dairy farm – a new driver but margins likely to weigh
While CGS increased their FY24F/25F/26F core EPS by 11.2/12.1/15.6%, they do expect a slowdown in core net profit growth into FY25F as F&N’s dairy farm comes on stream.
Management expects first milking to take place in early-2025, with the farm likely to take three years to achieve breakeven. Against this backdrop, CGS expecst F&N’s EBITDA margins to dip in FY25F (-0.2% pts to 15.8%) before recovering in FY26F.
CGS reiterates their Add call on F&N Holdings, with a higher target price of RM38.60 fuelled by their increased estimates.
CGS sees continued revenue and net profit growth from their positive outlook for consumer demand, coupled with a successful launch of its dairy farm operations, as key rerating catalysts for F&N’s shares.
