PETALING JAYA: Fraser & Neave Holdings Bhd
’s (F&N) extended rights as the manufacturer and distributor of Nestle’s Bear Brand sterilised milk in Cambodia bodes well for the company’s long-term growth.
According to MIDF Research, the contract extension with Nestle would broaden F&N’s geographical footprint, thereby mitigating downside risk.
“We are optimistic about the extended right to allow the company to increase its market share in the liquid milk segment,” the brokerage said in its report.
“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,” it noted.
It added that demand for liquid milk products was rising in Asean, and yet the region was not self-sufficient in milk production.
MIDF Research maintained its “buy” call on F&N, with an unchanged target price of RM33.50 based on a price-earnings ratio (PER) of 23 times pegged to the projected earnings per share of 146.9 sen for the financial year ending Sept 30, 2024 (FY24).
“F&N is currently trading at a compelling FY24 PER of 18 times versus its five-year mean PER of 23 times, while offering a dividend yield of 2.6% in FY23,” it noted.
F&N on Tuesday announced it had obtained exclusive rights from Nestle to manufacture, distribute and market Nestle’s Bear Brand sterilised milk products directly to end-consumers in Cambodia.
The contract, which was an extension of its licence agreements originally granted by Nestle in 2007 and subsequently renewed in 2015, was effective as of March 1, 2023 through to 2037.
Previously, F&N was only the producer of the Bear Brand sterilised milk in Cambodia.
F&N said it believed it had strengthened its foothold in the Indochina market by securing these extended rights.
Based on the news statement, the group announced that the Bear Brand sterilised milk would continue to be manufactured at F&N’s Rojana factory in Thailand.
“We are optimistic that manufacturing Bear Brand sterilised milk at Rojana factory would result in economies of scale, given that Rojana Factory is the largest canned liquid milk factory in Thailand and in the Asean region.
“The Rojana distribution centre in Thailand also connects the factory to a vast South-East Asian supply chain network, reducing transit time and promoting effective manufacturing,” MIDF Research said.
“Overall, we continue to like F&N as the medium to long-term outlook remains intact.
“This is underpinned by emerging out-of-home beverage consumption, fuelled by tourists’ returns to Malaysia and Thailand after the border reopened; an expansion of the company’s revenue base by expanding its liquid milk segment which would benefit from the growing demand for liquid milk in Asean; and a return to normalcy in export sales after the border reopened,” it added.
