KUALA LUMPUR (Aug 5): Analysts expect Fraser & Neave Holdings Bhd (F&N) to post better results due to relaxation of the movement control order (MCO) as well as product innovation, according to analysts.
MIDF Research analyst Ng Bei Shan expects F&N's earnings to improve as soon as the fourth quarter ending Sept 30, 2020 (4QFY20) as sales are expected to pick up following the easing of movement restrictions that started in July.
“Management noted that recovery in demand was seen in Malaysia, Thailand and some export markets after June. Going forward, management will continue to focus on process enhancement and digitalisation.
“With net cash of RM166.3 million as of end-June, we believe that F&N will be able to capitalise on opportunities that may arise,” Ng wrote in a note.
Ng maintained her FY20 forecasts for now as F&N’s results were in line. She maintained "neutral" on the group.
“We adjust our target price (TP) to RM32.92 from RM31.59 as we roll over our base year to FY21F (forecast). Our target price is now based on EPS (earnings per share) of 126.6 sen pegged at an unchanged PER (price-earnings ratio) of 26 times, which is its five-year historical average.
“While we opine that consumer sentiment may remain weak in the coming quarters, we believe that sales will recover over time. Possible risks include new movement restrictions, which may disrupt the supply chain and distort raw material prices.
“On the brighter side, we believe that F&N will withstand these challenges due to its strong branding, agility in addressing new market norms, cost management and strong balance sheet,” she said.
F&N’s net profit for 3QFY20 fell by 18.35% year-on-year (y-o-y) to RM93.85 million due to lower sales amid moderating consumer demand arising from Covid-19, while revenue declined to RM918.07 million on the back of lower contributions from its Malaysian operations, according to its filing with Bursa Malaysia yesterday.
Meanwhile, Kenanga Investment Bank Bhd analyst Nikki Thang believes that F&N's earnings should gradually recover moving forward, supported in part by the group’s continuous product innovations.
This follows its recent new launches, including the “teh tarik” beverages — namely F&N Teh Tarik Ori and F&N Teh Tarik Less Sweet variants in Malaysia — coupled with Magnolia Milkies (milk tablets made from 100% New Zealand milk) and limited-edition mango-flavoured sweetened condensed milk in Thailand.
“On the other hand, while the group had a setback from the failed acquisition of MSM’s (MSM Malaysia Holdings Bhd) Ladang Chuping land, we are nonetheless positive on the group’s intention to continue pursuing a dairy farm.
“The current weak economic environment may work well to its advantage as there may be other more attractively-priced land offers. In the longer term, the said plan would aid the group in expediting growth within the fresh milk segment on the back of more competitive cost advantages,” she noted.
She maintained her "outperform" call for F&N with an unchanged TP of RM36.20 based on an unchanged ascribed FY21F PER of 30 times.
“We deem our valuation to be fair, premised on its sturdy fundamentals and resiliency which could provide some degree of comfort under current market uncertainties, coupled with premium valuations attached to large-cap F&B (food & beverage) stocks in lieu of their earnings defensiveness.
“Yet, [F&N's] dividend could be a slight dampener with an anticipated low yield of about 0.2%. Risks to our call include slower-than-expected growth in its Thailand F&B business and higher-than-expected operating cost,” Thang added.
At 12.35pm, shares in F&N were 62 sen or 2.03% higher at RM31.14, with a market value of RM11.36 billion.