KUALA LUMPUR: Robust demand growth from Fraser & Neave Holdings Bhd’s (F&N) Thai operations is expected to be overshadowed by competition on the domestic scene.
Kenanga Research has reiterated its “market perform” recommendation on the stock but lowered its target price to RM35.15 following a downward revision in its earnings forecasts.
“We have tweaked our estimated earnings downward by 3.7% and 2.5% for financial year 2020 and 2021, respectively, to account for more conservative growth assumptions for Malaysia to -0.5%-0% (from 1%-2% previously), ” the research house said in a report.
However, Kenanga remains upbeat on F&N’s Thai food and beverage operations, which contributes about 70% of the group’s total operating profit.
It also expects the operations to continue leading growth owing to its continuous product innovation and strong brand presence as a market leader in the dairy segment.
In the financial year 2019 (FY19), the Thai business recorded year-on-year revenue and operating profit growth of 11% and 40%, respectively. F&N is targeting 6% to 7% topline growth for the Thai operations in FY20, versus Kenanga’s 4% to 5% estimate.
Moving forward, F&N plans to bolster its presence in the Middle East and North Africa (MENA) region by establishing a subsidiary in Dubai.
The group is targeting export revenue of RM100mil in the MENA region in 2020, contributing to total targeted export revenue of RM800mil.
Kenanga is also positive on F&N’s plan to venture into an integrated dairy and crop farming project, which is expected to yield long-term benefits.
The fresh milk segment currently contributes a low single-digit percentage to F&N’s total revenue.
According to Kenanga, the venture would allow F&N to expedite its growth in the fresh milk segment on the back of more competitive cost advantages.
It added that there could be a growing consumer preference for fresh milk over imported powdered milk owing to changing consumer trends.
“All-in, we reiterate our view with this being a longer-term prospect, hence ruling out any earnings accretive development over the next two years, ” it said.