Kenanga Research is upbeat about the company's earnings prospects.
PETALING JAYA: Fraser & Neave Holdings Bhd
’s (F&N) sales are expected to remain strong, driven by seasonal sales during the Chinese New Year period for the second quarter of financial year 2023 (2Q23).
The resilient sales coupled with the continuous decline in input costs (lower palm oil, milk powder prices and weakening US dollar) as well as previous price adjustments are expected to mitigate margin pressures in coming quarters.
Its gross margin has improved by 0.6 percentage point quarter-on-quarter (q-o-q) and the expectation is that it will improve to around 28% to 30% in the coming quarters led by the weakening of the US dollar, said TA Research.
“The group is currently focused on the integration of Cocoaland Holdings Bhd and looks forward to leveraging the strengths of both organisations to generate synergistic value for shareholders,” the research house said.
Kenanga Research is also upbeat about the earnings prospects.
This is based on several factors including the impact of the economic reopening, accommodative policies, coming festivities, return of international tourists in both Malaysia and Thailand and a recovery of export sales driven by China’s reopening.
It adds that the downside risk to margins is a lot more manageable given the weakening of the US dollar against both the ringgit (down 12%) and Thai baht (down 18%), although the same cannot be said of food commodity prices that remain volatile.
MIDF Research raised its earnings forecast for FY23 by 5.4% and FY24 by 7.2%.
This is after accounting for strong sales brought on by the return of international visitors which could boost out-of-home beverage consumption.
It had factored in lower raw material costs due to falling global commodity prices.
It raised its target price (TP) to RM33.50 a share and maintains its “buy’’ call on F&N.
MIDF remained optimistic about F&N’s outlook but cited key downside risks being raw material shortage, and a sharp increase in commodity prices which could impact the cost and profitability of its product.
TA Research maintained its “buy’’ call with an unchanged target price of RM29.70 a share.
Kenanga maintained its forecasts and TP of RM26.11 a share.
It downgraded its call to “market perform’’ from “outperform’’ as valuations have become rich after the recent run-up in its share price.
Kenanga Research said F&N’s 1Q23 results met expectations.
Its Malaysian operations were buoyed by festive buying and exports while Thai operations were weighed down by price hikes.
F&B players, in general, are at the mercy of food commodity prices as they lack pricing power, it added.
