Positive earnings reported by F&N

Fraser & Neave Holdings (F&N) has reported a core net profit of RM312.2 million for the first nine months of the fiscal year 2023 (9MFY23). This accounts for 72% of their full-year estimate. It also aligns with Kenanga Research’s projection.

F&N did not announce any dividend distribution in this period. This is a deviation from F&N’s typical practice of declaring dividends in the second and fourth quarters. The company’s revenue demonstrated a year-on-year increase of 13%, driven by robust performances in both Malaysia (+19%) and Thailand (+5%).

Kenanga Research clarified that F&N’s sales in Malaysia were invigorated by heightened demand during festive occasions. The progressive return to economic normalcy also played a significant role, alongside price adjustments and the full contribution from Cocoaland. In contrast, the firm’s sales in Thailand received a boost from the recovery of exports and local consumption. The gradual resurgence of tourism, particularly noticeable in the third quarter also illustrates this.

The company’s Earnings Before Interest and Tax (EBIT) experienced a relatively stronger growth rate of 15%. Milder commodity prices partially mitigated this expansion, countering the impact of increased marketing and promotional expenditures.

Sequentially, F&N’s revenue rebounded by 10%. Both Malaysia (+6%) and Thailand (+17%) played a role in this resurgence. However, F&N’s overall EBIT grew by only 3%. The 35% surge in the EBIT of its Thai operations was downplayed by a 45% downturn in the EBIT of its Malaysian operations.

USD still poses a challenge to F&N

Despite the optimistic outlook, the company faces manageable downsides. These are mainly due to the USD’s recent depreciation against the RM (-2%) and Thai Baht (-6%) and food commodity prices continue to pose a challenge.

The Target Price for F&N remains at RM28.44 according to Kenanga. The research entity upholds its positive stance on F&N due to the pronounced resurgence in product demand that has accompanied the reopening of economies and international borders. This is particularly notable for beverages, ready-to-drink items, out-of-home products, and the HORECA sector.

Kenanga Research maintains an optimistic outlook on F&N’s future earnings. It attributes this positivity to the full-year effects of economic reopening, supportive policies, amplified festive celebrations, renewed international tourism in Malaysia and Thailand, and the recovery of export sales facilitated by a weakened currency.

Elevated by the recent decline in its share price, Kenanga has upgraded F&N’s rating from Market Perform to Outperform. Their assessment acknowledges certain risks, including potential spikes in food commodity prices, the persistent impact of high inflation on consumer spending power, and the shift towards more economical alternatives in consumer behavior.