Fraser and Neave sees recovery, to boost market share: CIMB Research

KUALA LUMPUR: Fraser and Neave Holdings (F&N) is not concerned about the weak soft drink sales in its second quarter ended March 31, 2015 as it sees signs of recovery in 3QFY15, says CIMB Equities Research.

“It will continue to defend and increase its market share by enhancing its distribution network and product mix, as well as introducing more new products that will also help to buffer the impact of losing the Red Bull distributorship,” said the research house on Thursday.

CIMB Research maintained its FY15-17 EPS forecasts and DCF-based target price of RM23.33, which is 24.5% above the last traded price of RM18.74.

It also maintained its Add call on the stock, with stronger sales from successful market penetration, new product launches as well as the recovery of soft drink sales post the destocking effect as the potential re-rating catalysts.   

The research house said it attended F&N’s 1HFY15 results briefing hosted by the new CEO, Lim Yew Hoe who joined F&N Malaysia as its CEO on Dec 1, 2014.

Highlights of the briefing:

* The soft drinks segment was impacted by the destocking effect in 2Q but the company indicated that sales are already picking up in April;

* Dairies Malaysia's flat sales growth in 2Q was due to pricing pressures and substantially slower sales in the last two weeks before the implementation of GST;

* Dairies Thailand’s sales volume continued to be strong, driven by effective A&P activities;

* The launch of Fraser Square in Section 13, Petaling Jaya will be postponed to 2016;

*  To boost future growth, F&N will increase its market penetration, launch new products and change the packaging of its products.

CIMB Research said although F&N’s domestic sales were impacted in 2Q due to the uncertainties over GST, it believe that such sales should recover fairly quickly as consumers and retailers adapt to the GST environment.

“It also has many new products in the pipeline to boost sales. We continue to like F&N’s strong execution capabilities, which allow the company to grow despite already having a large market share,” it said.