KUALA LUMPUR: MIDF Research is optimistic over Fraser & Neave Holdings Bhd
's (F&N) extended right to increase its market share in the liquid milk segment.
The food and beverage group said in a statement it had obtained the extended rights from Société Des Produits Nestlé S.A. and Nestec S.A. (Nestlé) as the exclusive manufacturer and distributor of Nestlé’s Bear Brand sterilised milk in Cambodia, from March 1, 2023, to 2037.
F&N currently manufactures and distributes the Bear Brand sterilised milk and Bear Brand Gold beverages for Thailand and Laos.
Under the terms of the new agreement, Bear brand sterilised milk would continue to be manufactured at F&N's Rojana factory, which MIDF expects to result in economies of scale.
The Rojana factory is the largest canned liquid milk factory in Thailand and Asean.
MIDF said the Rojana Distribution Center in Thailand also connects the factory to a vast Southeast Asian supply chain network, reducing transit time and promoting effective manufacturing.
"Overall, we are positive about the announcement will broaden F&N's geographical footprint, thereby mitigating downside risk.
"We believe that the announcement, along with the recently completed milk and plant-based beverages factory in Wang Muang, Thailand, would allow F&N to expand its revenue portfolio in the liquid milk segment and capture a larger market share, thereby supporting top line growth going forward.
"Given that the demand for liquid milk products is rising in the Asean region, and yet the region is not self-sufficient in milk production," said the research firm in a note.
MIDF maintained its earnings estimate on F&N for FY23-25 pending more details from management.
The research firm added that apart from the expansion in the liquid milk segment, F&N's medium- to long-term outlook remains intact due to the emerging out-of-home beverage consumption fuelled by tourists' return to Malaysia and Thailand.
It added that there has been a return to normalcy in export sales following the border reopenings.
"F&N is currently trading at a compelling FY24F PER of 18x versus its five-year average mean PER of 23x, while offering a dividend yield of 2.6% in FY23F.
"We maintain our 'buy' stance on F&N with an unchanged target price of RM33.50. Our target price is based on PER of 23x (five-year historical mean) pegged to FY24F EPS of 146.9sen," said MIDF.
