- We reaffirm our HOLD recommendation on Fraser & Neave Holdings Bhd (FNH) with a higher fair value of RM17.40/share (vs. RM16.95/share earlier), pegged to 22x PE over FY15F earnings, following an upwards earnings revision.

- Excluding the one-off provision for litigation claim of RM4mil recognised in 4Q, FY14 results were above expectations. The group reported FY14 core net profit of RM263mil (+24%), which exceeded 7% and 5% of our and consensus estimates, underpinned by better-than-expected sales and margins.

- A final single tier dividend of 33sen was proposed in 4QFY14. If approved, total dividend will amount to 55sen for FY14.

- Post FY14 results revision, we estimate FY15F earnings to grow by 10% and 11% in FY16F. We introduce FY17F earnings of RM364mil, underpinned by increasing sales volume and widening of distribution channels. Key risks to our earnings forecast are higher-than-expected commodity prices and a slowdown in consumption.

- FY14 revenue grew 8.9% YoY driven by increased contribution from all business units, mainly Dairies Thailand which registered a strong double-digit growth of 15.6%. EBIT margin grew to 8.3% from 7.6% in FY13.

- Favorable sales volume were achieved YoY for all of its core businesses – soft drinks (+4.4%), Dairies Malaysia (+6.7%), and Dairies Thailand (+18.1%) – underpinned by expanded distribution, product penetration, and advertising campaigns.

- The stronger soft drinks performance (+26% operating profit YoY) was supported by favourable sales mix, lower trade discount, and lower advertising spending. 100Plus, Seasons Tea and Seasons Soya continued to maintain their leading positions in the ready-to-drink segment in Malaysia.

- Dairies Malaysia maintained its export sales despite the increasing competitive landscape. Higher operating profit was contributed by production yield improvements and lower execution costs.

- Except for Dairies Thailand, operating profit dipped by 1.5% YoY due to higher production costs for its milk-based products and inability to pass on costs to consumers.

- The Section 13 project, comprising an integrated development known as Fraser Square (GDV: RM1.7bil), is expected to launch within the next six months.

- The stock is now trading at a PE of 20x, which is above its 5-year trend average of 19x.

Source: AmeSecurities