PETALING JAYA: Fraser & Neave Holdings Bhd
(F&N) will head into next year on further positive catalysts to spur its earnings and share price performance, says CGS International Research (CGSI Research).
The research house said in a note to clients it expects new product launches from early next year when the company’s dairy factory F&N AgriValley in Gemas, Negri Sembilan begins commercial production.
Based on United Nations Commtrade data, Malaysia imported US$1.2bil or about RM4.9bil worth of dairy products last year, with milk and cream making up 58% of the value.
While this suggests significant room exists for substitution with domestic sources without significant price competition among domestic players, CGSI Research said there are significant opportunities in products such as butter, which F&N’s management identified as an area of focus at a recent analysts briefing on Nov 10.
Furthermore, the research house expects evidence of reducing losses from the dairy farm operations, spurring another leg of consensus upgrades and valuation upside.
F&N’s management at a recent briefing pointed to quarterly losses for its dairy farm business peaking by about the second quarter next year (2Q26).
“We also see F&N’s cumulative free cash flow at RM1.6bil between its financial year ending Sept 30, 2026 (FY26) and FY28, providing room for higher dividend payout ratios beginning FY27,” CGSI Research added.
The research house has raised its core net profit estimates for F&N for FY28 by 2.6% to reflect a lower tax rate as the dairy farm business begins to generate profits, allowing for tax losses and incentives for its dairy venture to be utilised.
“We also raised our FY27 and FY28 dividend per share estimates by 6.6% and 31.3%, respectively, to reflect higher dividend payout ratio assumptions of between 50% and 60%,” it noted.
CGSI Research reiterated its “add” call on F&N with an increased target price of RM41.60 per share following a review of the company’s dividend payout and tax assumptions.
“We see the delivery of improved earnings and positive news about its dairy farm business spurring a re-rating of its shares,” said the research house.
F&N’s valuations of 20.3 times next year’s price-earnings ratio also remained at a discount to its larger cap consumer staple peers at more than 30 times, with higher forecast dividend yields next year.
Key downside risks to the research house’s call include problems at the dairy farm that would negatively impact earnings, higher raw material costs, and events that negatively impact consumer sentiment.
In its fourth quarter ended Sept 30, F&N’s net profit surged 34.5% to RM114.3mil, or 31.20 sen per share, bringing its full-year earnings to RM508.5mil, or 138.90 sen per share.
Quarterly revenue slipped 2.3% to RM1.2bil, while full-year revenue stood at RM5.2bil.
