F&N chief executive officer Lim Yew Hoe.
PETALING JAYA: With higher tax bills and startup losses weighing on recent earnings, Fraser & Neave Holdings Bhd
(F&N) is doubling down on long-term bets in dairy and agriculture.
Tax expenses spiked after the expiry of Thailand’s Board of Investment incentives in the third quarter of its financial year 2024 (3Q24) and withholding taxes on repatriated profits.
However, chief executive officer Lim Yew Hoe expects the impact to ease starting next quarter.
“The good thing, of course, is that from last year, we started this journey in 3Q24. So, by next quarter, we will normalise, and operating profit improvement should conceptually translate to profit after tax improvement,” he said during the group’s media briefing on its first half of its financial year 2025 (1H25) performance.
For 1H25, F&N saw its revenue inch up by 1.4% year-on-year (y-o-y) to RM2.72bil from RM2.69bil previously.
Operating profit rose 4.9% y-o-y to RM430.1mil.
However, net profit declined 8% to RM309.36mil compared with RM336.15mil in 1H24, primarily due to a 9.7% increase in tax expenses.
While the group is also navigating early-stage losses in its new business segment – including fresh milk production at its RM3bil AgriValley in Gemas, Negri Sembilan – Lim is confident the pain will be short-lived.
“Our break-even should be about three to five years from now. And definitely that is not at 20,000 milking cows. It is faster than that,” said Lim, adding that the focus for phase one is to reach 10,000 milking cows, with the full 20,000 revenue cows expected only in phase two.
To date, the group has already brought in 2,700 dairy cows from Chile.
He clarified that while the total herd size in phase one may reach 20,000, not all will be producing milk.
“Normally when we say 20,000, we are referring to 20,000 lactating cows. Or we call it revenue cows. That will come in phase two.”
A key driver of profitability will be feed cost, he said.
“A lot depends on how we can keep our feed costs as low as we want. If we are able to get our feed costs down to the level that we think is possible and doable in Malaysia.
“Actually, we believe that our feed costs will be lower than the United States, because over there, they plant one cycle, we can do two and a half.”
The group is growing its own corn silage across 1,000 ha and expects this to eventually make up about 40% of the cattle’s diet.
However, utilisation of the homegrown silage is only expected to begin next year at the earliest.
Lim stressed the importance of cow selection in ensuring yield efficiency, explaining that cows with high daily yields are selected.
“If every cow produces 10 litres less per day, we have to build a lot more barns, and that is going to affect our internal return rate,” he explained.
On market strategy, he said most of the milk will be consumed locally, under their Magnolia brand.
“It would be mainly for in-source. Our primary supply is actually made for our local markets, with probably 20% being exported into Indochina.”
As for the financial impact, Lim described the current losses from the segment as manageable.
“If we look at losses (from the venture), it is currently a small portion of our profitability that we are actually having right now. It is approximately at less than 10% of our operating profit of RM400mil,” he said.
F&N has earmarked RM1.8bil for capital expenditure (capex), a large portion of which will go toward its dairy barn facilities, followed by equipment, manufacturing plants and livestock.
Of that, nearly RM600mil is being channelled into building the barn infrastructure alone, while the cost of acquiring genetically selected, high-yield cows is estimated at below RM100mil.
In a separate development, Lim said F&N is preparing to commission its new carbonated soft drinks (CSD) and drinking water production lines in Butterworth, Penang.
The site, once home to F&N’s returnable glass bottle operations, was later used as a regional warehouse before being earmarked for redevelopment.
“The beauty of this project is that we did not need to buy land or construct new buildings,” said Lim.
“We simply renovated the existing premises and brought in new machinery. It is efficient, and costs are low.”
The facility is expected to relieve production strain from the group’s fully utilised plants in Shah Alam and Bentong.
Lim said transport cost savings are also a key advantage – where shifting production closer to the northern market reduces logistics expenses significantly.
“A carton of 100PLUS sent from Shah Alam to the north costs about RM1.50 in transport. From Butterworth, it is only 50 sen,” Lim noted.
Lim added that with the new plant, F&N is also planning to produce smaller SKUs (stock keeping units) for drinking water, around 200ml to 250ml, as demand for smaller pack sizes is increasing.
Beyond Malaysia, Lim said F&N continues to solidify its Indochina strategy, which now rests on three pillars – domestic Thailand operations, international exports, and its growing presence in Cambodia and Laos.
In Thailand, he said F&N commands over 80% market share in evaporated milk and more than half of the sweetened condensed milk segment.
Yet, he said growth will require moving beyond its core category.
“In Cambodia alone, we are already transacting over two billion baht or over RM200mil in sales,” said Lim. “It is a country of nearly 20 million people, and demand is strong.”
To meet that demand, as well as to hedge against tariffs and freight fluctuations, Lim said F&N is building a new manufacturing facility in Cambodia.
Phase 1 of the factory, already under construction, will focus on sweetened condensed milk in cans and flexible pouches — the most consumed products locally.
At closing yesterday, shares of F&N closed 24 sen or 0.91% down at RM26.22 per share, giving it a market capitalisation of RM9.62bil.
