PETALING JAYA: Fraser & Neave Holdings Bhd (F&N) is keeping track of the coronavirus (Covid-19) outbreak and its impact on its overseas markets, notably in Hong Kong and China amid volatile raw material prices.
Responding to StarBiz queries, the company said due to the pandemic, F&N is closely monitoring the global economic uncertainties on its exports business.
The markets are expected to gain importance moving forward, analysts noted. The company’s canned milk sales to Hong Kong and China are growing in line with the surge in the confectionery and ready-to-drink tea and coffee businesses there.
“Hong Kongers consume some 900 million glasses/cups of milk tea a year and it is ranked fourth in Hong Kong cuisine. In China, the working class also consume the ready-to-drink milk tea and the numbers are expected to escalate due to its large population which will boost F&N sales and its contribution to the group’s overseas revenue, ” an analyst said.
Commenting on the outbreak, F&N said: “The health authorities in the country have cautioned against gatherings in public places and events to minimise any risk of contamination. We recognise that prolonged absence of people outdoors and participation in outdoor activities will have some impact, but we are unable to ascertain the scale at this moment.“Should the Covid-19 disruption be extended, we inevitably will be affected like everyone else.”
F&N is confident that the authorities are implementing the necessary measures to combat against any significant rise in infections and spread of misinformation.
The company said headwinds in the financial year 2020 (FY2020) would include macro-economic uncertainties induced by the US-China trade war and the geo-political tensions in the Middle East.
For its overseas markets, the newly established subsidiary in Dubai, F&N Mena, would help to increase and deepen its presence in the Middle East and North Africa region.
“We will leverage our manufacturing capabilities and expand our range of product offerings in existing markets while expanding to new markets and collaborating with suitable overseas partners to expand our export sales channel. F&N will leverage on its diverse product portfolio and geographical footprint to adapt to our strategies to evolving market environment.”
More than 50% of group revenue in FY2019 was generated outside Malaysia.
For its first financial quarter ended Dec 31,2019, the company’s net profit grew 4.5% to RM128.37mil compared with RM122.86mil a year ago on the back of higher contribution from its associate Food & Beverages (F&B) Thailand.
Revenue for the quarter stood at RM1.11bil, a 10% increase from RM1.01bil previously.Its operation in Malaysia saw a 7.2% decline in profit from RM52.5mil to RM48.7mil on the back of higher input cost, warehouse and freight charges as well as earlier marketing activation and higher marketing expenses.
However, F&B Thailand’s operating profit rose 11.7% from RM99.3mil to RM110.9mil, mainly due to a higher domestic sales and favourable input costs as a result of a stronger baht.“With the approval of the board of investment tax incentives for our new capex in Thailand, we are expecting lower effective tax rate for our Thailand operations for this year, ” F&N said, adding that compliance with halal standards has enabled the group to gain credibility and traction in the Middle East.
In FY2019, the halal market contributed 26% of the company’s export revenue.
Apart from its newly-established subsidiary in Dubai to enhance its business in the Mena region, the company remained focused on growing sales in existing markets while expanding to new markets and collaborating with suitable overseas partners.
The company has operations in Thailand, Laos and Cambodia.
On the outlook of raw material prices, F&N said they are expected to remain volatile, adding that certain dairies input prices have risen since last year.
“Our policy to hedge a portion of our requirements ahead for the financial year will mitigate the impact while we also actively implement cost savings projects.
As for its dividend policy for 2020, the company said it did not have a set dividend policy but its target dividend payout ratio was no lower than 50%.
“Whilst we will continue to reward our loyal shareholders, we are also mindful of hiving sufficient internal resources to fund our capex programmes, and in particular our mega dairy project towards which we plan to commit more than RM650mil for the project in its first phase.”
Kenanga Research, which is upgrading the stock to “outperform” with a higher target price of RM35.20, said it expected the group’s earnings to be propelled by product innovations and robust Thai operations.
The “outperformance” call was premised on the group’s fundamentals as a resilient consumer counter.
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