Fraser & Neave Holdings Berhad (F&N) showed resilience amidst a soft consumer market, with a notable increase in profit margins and revenue growth, according to reports by Kenanga Investment Bank (Kenanga) and MIDF Amanah Investment Bank (MIDF). The company's 9MFY24 results met expectations, driven by a favourable product mix, lower input costs, and enhanced efficiency.
MIDF maintained a BUY rating with an unchanged target price of RM37.00, citing better profit margins and rising revenue despite export risks and higher tax expenses.
Kenanga reiterated an OUTPERFORM call with a target price of RM38.25, highlighting the robust performance and continued benefits from consumer preference for Asian brands.
F&N's 9MFY24 core net profit rose 30% year-over-year (YoY) to RM454 million, aligning with forecasts from both banks. The revenue grew by 6% YoY, boosted by higher sales in Malaysia and Thailand, despite seasonal declines and increased input costs in the third quarter. Both investment banks noted the impact of the Board of Investment (BOI) incentive expiration on future tax expenses, with MIDF projecting a slight earnings adjustment.
Kenanga's analysis indicated that F&N might continue benefiting from the return of tourists to Malaysia and Thailand, alongside a focus on high-growth Halal packaged food and dairy products. The streamlining of manufacturing facilities for Sri Nona and Cocoaland is expected to enhance efficiency and profitability. MIDF highlighted positive developments, such as increased out-of-home beverage consumption and the completion of the first phase of F&N's integrated dairy farm in Gemas, Negeri Sembilan by early CY25, which aims to cater to the underserved fresh milk market in Malaysia.
Both investment banks emphasised the stable demand for F&N's essential food items, which provides earnings defensiveness amid high inflation and uncertain global economic outlooks. The rising popularity of ready-to-drink products and strategic positioning to leverage increased domestic consumption and tourist returns were also noted as key growth drivers. F&N's earnings are projected to benefit from lower raw material input costs and consumer preferences shifting towards local brands.
The target prices were supported by consistent valuation metrics, with Kenanga maintaining an unchanged 22x FY25F Price per Earnings (P/E) ratio, reflecting industry averages. MIDF's target price was based on a 20.6x P/E ratio for the revised EPS25 of 179.9 sen, factoring in the end of tax incentives.
