- We reaffirm our HOLD recommendation on Fraser & Neave Holdings Bhd (FNH) with an unchanged fair value of RM17.40/share, pegged to 22x PE over FY15F earnings.

 - FNH reported net profit of RM70mil for its 1Q15 results, which is within our and consensus expectations – at 24% of full-year FY15F. No dividends were declared during the quarter.

 - Revenue (+9% YoY) and earnings (+2% YoY) came mainly from its dairies division, with a cumulative contribution of 60% to operating profit from both Dairies Malaysia and Dairies Thailand. EBITDA margin remained stable at about 10%.

 - Sales of soft drinks grew marginally by 0.5% YoY due to the Chinese New Year period being held later this year and loss of sales arising from the East Coast flood. Dairies Malaysia and Dairies Thailand grew on the back of stronger sales and distribution network.

 - Nevertheless, the strong performance of its diaries division (operating profit: +22% YoY and +52% QoQ) had offset the significantly lower performance of the soft drinks division. Operating profit declined by 37% YoY and 43% QoQ due to additional operational costs associated with the floods in East Coast, higher operational costs, and reversal of marketing accruals.

 - We expect sales momentum for soft drinks to pick up in 2QFY15 boosted by the Chinese New Year festivities in February. About ~80% of sales volume is generated from the local market.

 - While consumer spending is expected to slow down, we think that theimpact on FNH would be less severe compared to that on retailers, as the former is generally more resilient post GST. We believe FNH will continue to roll out new products mix and expand its distribution network for greater market penetration and greater synergies with Thai Beverage.

 - We maintain our EPS estimates and HOLD recommendation. The stock is currently trading at a PE of 24x, which is above its 5-year trend average of 19x.

Source: AmeSecurities