CGSI Research trimmed its core net profit forecasts for the group for this year and next year by 7.8% and 0.4%, respectively.
PETALING JAYA: CGS International Research (CGSI Research) has reaffirmed its “add” call on Fraser & Neave Holdings Bhd
(F&N), citing the resilient fundamentals of the group and undemanding valuations despite near-term challenges from the Thailand-Cambodia border closure.
In a note published to clients yesterday, the research house maintained its Gordon Growth Model-derived target price of RM36.50.
This implies a 29% upside from F&N’s last traded price of RM28.26 at the time of writing.
The Gordon Growth Model helps in determining a stock’s intrinsic value based on expected future dividends growing at a constant rate.
It is particularly valuable for analysing companies with stable dividend growth.
CGSI Research said F&N’s valuation of 16.7 times forecast earnings for next year, compared with domestic consumer-staples peers trading above 30 times, suggests “investors are overplaying the risks of its nascent dairy farm venture”.
F&N also recently announced plans to sell its 50% stake in Vacaron Sdn Bhd, which owns 5.15ha of land in Petaling Jaya, to Tan & Tan Development for RM180.35mil.
The deal, expected to be completed by the third quarter of 2027, is set to generate a gain of RM83.2mil, which F&N intends to channel into its dairy farm operations.
“We view this transaction positively as it frees up underutilised capital and diverts it to F&N’s core food and beverage business,” CGSI Research said.
The research house trimmed its core net profit forecasts for the group for this year and next year by 7.8% and 0.4%, respectively.
For 2027, the forecast was raised 0.7%. The adjustments reflect the disruptions from the border dispute and the gains from the sail of Vacaron.
“With the border closure, F&N will be routing products from Malaysia to Cambodia, thus incurring added logistics costs. This should be mitigated by the completion of its dairy plant in Cambodia next year,” the research house pointed.
CGSI Research added that a stronger ringgit against the US dollar, increased cash handouts and a less onerous fuel subsidy rationalisation in Malaysia should support revenue development going into next year.
It also expects Budget 2026 and the launch of fresh milk products from the company’s dairy farm in Gemas, Negri Sembilan, to serve as key revenue catalysts.
The research house said it believes successful execution of F&N’s dairy venture will be pivotal to re-rating the stock.
“Positive news and data points in the coming quarters will provide re-rating catalysts and narrow the valuation gap.”
CGSI Research cautioned that downside risks include failure to meet targets at the dairy farm, weak consumer sentiment in Malaysia and Thailand, and an escalation of the border conflict between Cambodia and Thailand.
