F&N seen notching higher earnings on increased beverage consumption in SE Asia amid hot weather

TheEdge Wed, Apr 17, 2024 12:18pm - 1 month View Original


KUALA LUMPUR (April 17): Fraser & Neave Holdings Bhd (F&N) is poised for a surge in earnings over the coming quarters, driven by heightened demand for its products in key operating areas like Thailand and Malaysia, along with robust export sales across Southeast Asia (SEA), due to extremely hot weather conditions.

This is due to the ongoing El Niño event, projected to persist until mid-May, followed by the anticipated La Niña in the second half of the year, which will drive up demand for ready-to-go (RTG) drinks and out-of-home (OOH) beverages, said MIDF Amanah Investment Bank.

Shares of F&N have surged over 11% year to date, reaching RM31.30 during Wednesday’s morning session, its highest since January 2021.

The counter rose 24 sen or 0.78% to RM31.20 as of 9.52am, giving it a market capitalisation RM11.44 billion. At RM31.20, the stock has a price-earnings ratio of 22.5 times, and according to MIDF’s target price of RM37, it has an upside potential of 18.6%.

According to Bloomberg, there are five “buy” calls and two “hold” calls on the food and beverage counter, with a 12-month target price of RM33.03.

MIDF revised F&N's earnings forecast upward due to stronger demand for OOH beverages in the first half of 2024, coupled with the underserved fresh milk market and normalisation of commodity prices.

Earnings forecast has been raised 5.2% for FY2024 (ending Sept 30), 3.8% for FY2025 and 2.6% for FY2026.

“We remain positive about the company's FY2024 prospects underpinned by:  strong OOH beverages consumption supported by the heatwave across parts of Southeast Asia, return of leisure and business tourists thanks to the visa-free exemptions from both Thailand and Malaysia, lower raw material input costs, thanks to normalized commodities price, as well as benefit from the shift in Malaysian consumer preferences towards local brands.

“We also 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,” said MIDF in a note.

In FY2023, F&N recorded a net profit of RM536.90 million, its highest in 13 years — a significant increase of 40.11% from RM383.21 million in the preceding year. This surge was fuelled by robust festive sales and OOH consumption, along with contributions from snack and candy maker Cocoaland Holdings Bhd.

Additionally, annual revenue grew by 11.88% to reach a record high of RM5 billion, up from RM4.47 billion previously.

Moving forward, with the prospect of declining global commodity prices, MIDF suggested the likelihood of reduced raw material costs on the horizon. It foresees the potential for F&N's raw material expenses to revert to levels seen in FY2022.

In addition, the research house acknowledged the risk of delays in receiving certain commodities due to the ongoing global shipping disruptions, with shipping companies avoiding the Suez and Panama Canals.

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