MARC Ratings has affirmed its AAAIS(cg)/MARC-1IS(cg) ratings on F&N Capital Sdn Bhd’s Islamic Medium-Term Notes (IMTN) and Islamic Commercial Papers (ICP) programmes with a combined limit of up to RM3 billion, while maintaining a stable outlook.
The ratings reflect the credit strength of parent company Fraser & Neave Holdings Bhd (F&NHB), which provides an unconditional and irrevocable corporate guarantee for the debt programmes through its wholly owned funding vehicle, F&N Capital.
MARC Ratings said F&NHB continues to benefit from its market-leading positions in the dairy and beverage segments across Malaysia and Thailand, supported by strong brand recognition, a long operating history, resilient cash flow generation, healthy liquidity and a conservative balance sheet.
However, the rating agency noted that the group’s credit profile remains exposed to raw material price volatility, geopolitical developments in key markets, particularly weaker sales in Cambodia, as well as execution and biological risks associated with its integrated dairy farming operations.
A key milestone for the group has been the progress of F&N AgriValley, its integrated dairy farming venture, which began commercial milking operations in June 2025 as part of F&NHB’s strategy to strengthen supply chain resilience and improve Malaysia’s raw milk self-sufficiency.
As at end-May 2026, the farm’s herd had expanded to more than 8,000 cattle, including over 3,000 milking cows, producing more than 2 million litres of raw milk monthly. Average milk yields exceeded 25 litres per cow per day, outperforming the domestic industry average, while home-grown feed is expected to be introduced from August 2026 to further improve feed self-sufficiency.
Despite these operational advances, F&NHB’s financial performance softened during the first half of FY2026. Revenue declined 6.9% year-on-year to RM2.5 billion, mainly due to weaker sales in Cambodia amid the prolonged Thailand-Cambodia border conflict, which disrupted cross-border logistics and dampened consumer demand.
Operating profit fell 23.8% to RM331.1 million, reflecting lower sales and start-up costs associated with the dairy farm, resulting in the operating profit margin narrowing to 13.1% from 16.0% a year earlier.
MARC Ratings expects margins to remain under pressure in the near term as the dairy farm continues to ramp up operations. However, profitability is anticipated to improve over time as utilisation increases, operational efficiencies strengthen and the group’s reliance on externally sourced raw milk declines.
The agency highlighted that F&NHB’s cash flow generation strengthened during the period, with cash flow from operations rising to RM456.6 million from RM265.6 million previously, largely due to the normalisation of dairy farm-related receivables. It expects operating cash flow to remain healthy throughout FY2026, supported by a gradual recovery in Cambodia.
F&NHB also maintained a strong financial position, with total borrowings of RM590 million as at the end of the first half, including RM500 million outstanding under the rated sukuk programme.
MARC Ratings noted that the RM90 million tranche maturing on Aug 4, 2026, is expected to be repaid using internal funds, reducing the group’s debt-to-equity ratio to approximately 0.13 times, while the RM250 million tranche due in October 2027 is expected to be refinanced.
As at end-1HFY2026, the group held RM606.1 million in cash and bank balances, exceeding its total borrowings and leaving F&NHB in a net cash position, reinforcing its strong liquidity profile, the rating agency said.
