Fraser and Neave remains an Add for CIMB Research

  • Banking
  • Wednesday, 06 May 2015

KUALA LUMPUR: CIMB Equities Research is maintaining its earnings forecasts and discounted cashflow-based target price of RM23.33 and keeps its Add rating. The last traded  price was RM18.54.

The research house said on Wednesday that potential re-rating catalysts would  be more products cross-selling, and the recovery of margins in Thailand and domestic sales post the destocking effect.

F&N declared an interim single-tier dividend of 22 sen, in line with its forecast.    

CIMB Research said F&N’s 1HFY15 net profit was in line with its forecast.

It said F&N’s 1H financials are typically stronger due to year-end festivities. Revenue expanded 4.9% on-year on the back of a stronger performance from dairies which offset the weak soft drinks sales, while core net profit rose 5.6%, mainly driven by a lower effective tax rate.

The research house said F&N’s 1HFY15 revenue increased 4.9% on-year, driven by Dairies Malaysia (+4.6% on-year) and Thailand (+18.1% on-year) which offset the weaker soft drinks sales (-5.6% on-year).

The better performance from Dairies Malaysia was driven by the strong growth in 1Q when revenue was boosted by stronger domestic and exports sales on higher market penetration.

In 2Q, Dairies Malaysia reported a flat revenue growth on-year, impacted by weak consumer spending. Dairies Thailand reported good results on the back of higher trade and consumer off-take, higher level of promotional and trade management activities, as well as the depreciation of the ringgit against the Thai baht.

“The strong results from Dairies offset the weak soft drinks sales which was mainly impacted by a lacklustre 2Q as distributors and retailers destocked pre-GST (to minimise inventory on-hand). There were also some spill-over effects from the floods in the East Coast of Peninsular Malaysia.

“Margins narrowed, impacted by soft drinks segment. F&N’s EBIT rose slower than the top line, impacted by lower sales volume and unfavourable product mix from the soft drinks segment. This offsets the better margins reported by Dairies Malaysia and Thailand due to lower milk-based commodity costs,” it said.

CIMB Research said aside from lower raw material costs, Thailand’s margin ere also boosted by a favourable sales mix and higher factory efficiency.

However, core net profit (excluding one-off receivables and cooler impairment charges of RM4.1m due to the floods in East Coast) saw stronger growth than the topline, at 5.6% on-year, thanks to the lower effective tax rate of 16.3% versus 19% last year.

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