Fraser & Neave Holdings Bhd
(May 6, RM18.74 )
Maintain neutral with a higher target price (TP) of RM18.98: Fraser & Neave Holdings Bhd (F&N) reported a net profit of RM70.5 million for the second quarter of the financial year ending Sept 30, 2015 (2QFY15). The cumulative six months of FY15 (6MFY15) earnings met ours and consensus’ expectations, accounting for approximately 48.3% and 47.9% of full-year estimates respectively. 

Its 2QFY15 revenue grew by a meagre 0.5% year-on-year (y-o-y) to RM939.9 million from RM935.4 million last year. Although the growth in revenue was largely contributed by the dairies segment, the decline in soft drinks sales partially offset the overall growth in revenue. 

Despite trade and promotional activities for the Chinese new year festivities, soft frinks segment chalked in lower revenue by 11.8% y-o-y. The main reasons behind the lower sales revenue and volume were high pre-goods and services tax trade destocking and spillover effects from the east coast flood. 

Meanwhile, the Malaysian dairies segmental revenue dropped slightly by 1% y-o-y on the back of more cautious consumers and businesses trading down. On the other hand, positive revenue contribution came from the dairies segment in Thailand, which was up 15.6% y-o-y, backed by increased outlets penetration, higher trade and consumer offtake and higher level of promotional and trade management activities. F&N’s operating profit grew slightly by 8.5% y-o-y to RM84.885 million. The performance was moderated predominantly by the negative growth in the soft drink segment, falling by 22.4% y-o-y. Nevertheless, Malaysian and Thai dairies segments continued to show positive results with increases of 8.6% and 6% y-o-y respectively. The growth in the Malaysian dairies segment was mainly attributed to lower cost of milk-based commodities.

A dividend of 22 sen per share has been declared, payable on June 12, 2015. This will be the first dividend payout for FY15. We maintain neutral with a rolled-forward TP. We roll forward our valuation horizon to FY16 based on price earnings ratio of 21.1 times, hence revising our TP from RM16.73. We thereby maintain our neutral stance on F&N. 

Moving forward, the management is banking on domestic demand as the key driver for growth. We expect that consumer demand will remain conservative before normalising. We believe that demand will start to pick up in the next quarter, during the upcoming festive season of Ramadan and Hari Raya Aidilfitri. — MIDF Research, May 6

This article first appeared in The Edge Financial Daily, on May 7, 2015.