This article first appeared in The Edge Financial Daily on July 5, 2017
PETALING JAYA: The supply of isotonic drink 100PLUS to all McDonald’s outlets in Malaysia is expected to keep Fraser & Neave Holdings Bhd’s (F&N) revenue growing for the fifth year running. However, the strength in the boost to the group’s profit remains to be seen.
The sale of 100PLUS products is expected to be a major contributor to the group’s overall soft drink segment, at between 30% and 35% of F&N’s total revenue, said a TA Securities analyst tracking the group. The analyst foresees a significant number of McDonald’s customers may opt for 100PLUS as a healthier option.
“However, we remain cautious about margin improvement as the management said they are focused on [keeping the] partnership [with McDonald’s Malaysia],” the analyst said.
TA maintains its mid-single digit forecast growth for F&N’s 2017 financial year (FY17) revenue, noting that mild top-line growth may be seen from the partnership.
On revenue contribution from the partnership, F&N chief executive officer Lim Yew Hoe said the group’s focus is on making the partnership work well and that it is “not the right time to count profitability”.
“Maybe we can tell you about the impact on our revenue in two to three years,” Lim said at the press conference following the partnership’s official announcement yesterday, that F&N supplies its 100PLUS to the fast-food chain nationwide.
Last Wednesday, F&N’s share price climbed to a record high of RM26. It closed at RM25.30 yesterday, with a market capitalisation of RM9.27 billion.
It is currently trading at forward price-earnings (PE) ratio of 22.83 times, according to Bloomberg, in line with its industry peers such as Dutch Lady Milk Industries Bhd with a PE ratio of 25.36 times, and Nestle Malaysia Bhd with a PE ratio of 30.46 times.
All five analysts who cover the stock, according to Bloomberg, have a hold or neutral rating on F&N with a consensus target price of RM24.78.
“The revenue growth will come, so I’m not worried about it,” F&N senior vice president of group marketing for non-alcoholic beverages Khalid Alvi said. According to Khalid, the partnership with McDonald’s has been two years in the making and follows a four-month trial at 10 McDonald’s outlets in major towns.
The trial period was “highly successful”, he said, adding that the sales of 100PLUS had met all the parameters agreed upon between the two parties for the product’s formal introduction at McDonald’s outlets.
Though McDonald’s is the first quick-service restaurant network in Malaysia to offer 100PLUS, the partnership is non-exclusive, said Khalid. 100PLUS has a near 90% share of Malaysia’s isotonic drinks market, he added.