Heatwave in Southeast Asia a blessing in disguise for F&N?

NST Wed, Apr 17, 2024 12:30pm - 1 month View Original

KUALA LUMPUR: Fraser & Neave Holdings Bhd (F&N) is expected to reap significant benefits from the upcoming heatwave in Southeast Asia given its dominant position in the food and beverage (F&B) sector in the region.

MIDF Research said based on the Retail Index Service, F&N is the leading company in Malaysia for ready-to-drink tea, carbonated soft drinks, evaporated milk and sweetened condensed milk.

"We expect that the extreme weather will lead consumers to seek refreshing and convenient options to stay hydrated and cool, thereby increasing the demand for ready-to-go (RTG) drinks and out-of-home (OOH) beverages," it said.

F&N is also recognised as the top brand for condensed milk, evaporated milk and sterilised milk in Thailand.

As a result, MIDF Research expects F&N's revenue for the second and third quarters of the 2024 financial year (2QFY24 and 3QFY24) to experience a surge due to heightened demand for its products.

"The demand for its products is not only in key operating countries like Thailand and Malaysia but also through exports across Southeast Asia, considering the extreme weather. 

"This is on the back of the current El Niño event across the region that is expected to continue until mid-May before the anticipated La Niña event (June-September 2024)," it noted.

MIDF Research adjusted its earnings forecast for the financial years 2024 to 2026 (FY24-FY26) upward by 5.2 per cent, 3.8 per cent and 2.6 per cent, respectively.

This was attributed to increased demand for OOH beverages in the first half of calendar year 2024 (1HCY24).

The firm expressed optimism regarding F&N's initiative to introduce an integrated upstream fresh milk venture, with the initial phase targeting the production of 100 million litres of fresh milk in Gemas, Negri Sembilan.

"The first milking is expected in early 2025. This initiative enables the group to achieve self-supply and reduce operating costs.

"The target of achieving total production of 200 million litres of fresh milk following the completion of all phases would also allow the group greater capacity to cater to both local and international markets and hence expand business revenue," it added.

MIDF Research noted that F&N's parent Fraser & Neave Ltd has investments in Vinamilk, Vietnam's largest dairy company which could provide valuable market insights for irs involvement in the dairy farming sector.

The target price for F&N has been raised to RM37 from RM33.50 previously.

"F&N is poised to benefit from the shift in Malaysian consumer preferences towards local brands, and we appreciate the group's investment in the integrated dairy farm to enhance self-supply, which can improve cost management and reduce reliance on imported milk," it said.

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