PETALING JAYA: Fraser & Neave Holdings Bhd
(F&N) is on a path of self-sufficiency for cost advantage, says UOB Kay Hian (UOBKH) Research.
The food and beverage player has three nearby estates – AgriValley, Ladang Pasir Besar and Ladang Londah – to undertake crop cultivation for its dairy business.
“F&N will target 70% to 80% feed self-sufficiency over the next few years, thus lowering production costs by 40%.
“Water requirements will be met internally via reservoirs, and solar generation is being explored as part of a broader push toward operational self-sufficiency,” the research house said in a report.
According to UOBKH Research, if all these efforts are successful, F&N’s milk products could cost over RM1 lower to produce than comparable offerings.
Currently, fresh milk contributes a low-single digit to F&N’s Malaysia revenue, but saw a 238% growth year-on-year in the first half of financial year 2026 (1H26).
“F&N plans to launch pasteurised milk around June to July, while exports to Singapore have commenced.”
“Over time, we expect expansion into higher value-added dairy segments, including functional dairy, yogurt, butter, and ice cream,” UOBKH Research further said.
As for AgriValley, its losses were about RM17mil for the second quarter of financial year 2026 due to the commencement of its milk processing line and limited contribution from the second batch of cows imported in November last year.
UOBKH Research noted that the yield softness was more due to the herd cycle, and not execution.
“As such, we expect losses to taper progressively, with potential operational breakeven by 2027, followed by profit before tax breakeven in 2028 in line with management guidance.
“We view this timeline as commendable, given the greenfield nature of the project and the sizeable RM2bil capital expenditure involved.”
UOBKH Research believes F&N is on the cusp of a turnaround and has maintained its “buy” call on the stock with a target price of RM38.70 a share.
It added that F&N continues to trade at bargain valuations as a large-cap consumer staple.
Cambodia sales have faced headwinds from the Thai-Cambodia side as 1H26 sales was down 96%.
UOBKH Research said losses were also due to the start-up costs at its new plant.
“Over the next few quarters, Cambodia will begin producing both condensed and evaporated milk, but weak sentiment toward existing products suggests a turnaround could take up to two years,” it added.
As for the Middle East crisis, broad-based input inflation and weaker consumer sentiment have emerged, with unmitigated costs rising by 8% to 10%, led by PET resin and energy.
UOBKH Research believes F&N is on the cusp of a turnaround and has maintained its “buy” call on the stock with a target price of RM38.70, adding that for a large-cap consumer staple, F&N continues to trade at bargain valuations.
Meanwhile, CIMB Research said in a report earlier this month that it will maintain a “hold” call on F&N, on the back of its muted near-term earnings and weakness across the Indochina region.
The research house also lowered the target price to RM31.60, noting that it expects a softer 2H26.
“To mitigate the impact, F&N aims to bolster near-term profitability by rolling out cost-control initiatives, enhancing operating efficiencies, reducing trade discounts, and implementing selective price hikes.”
