F&N’s FY23 results met our forecast but beat market expectation. Its FY23 core net profit rose 21% YoY driven by increased sales and improved margins, leading to a surprise special dividend. It plans to navigate market volatility with focused brand and engagement strategies. We fine-tune up our FY24 net profit by 3%, lift our TP by 3% to RM29.40 (from RM28.45) and maintain our OUTPERFORM call.

F&N's FY23 core net profit of RM485m (excluding RM51m gains mainly comprising fair value gain on Cocoaland’s privatisation) met our forecast but beat the consensus estimate by 6%. A total dividend of 50.0 sen declared (comprising a surprise 17.0 sen special dividend plus a 33.0 sen final dividend) exceeded our forecast of 33.0 sen.

YoY, F&N’s top line grew 12% with strong showing from both Malaysia (+18%) and Thailand (+5%). Its sales in Malaysia were fuelled by festive demand, increased out-of-home dining, an expanded product range and Cocoaland’s full integration. It continued to improve its product selection, distribution, channel operations, and marketing, enhancing sales across multiple channels. Thailand sales benefited from a rebound in exports and domestic demand, along with a favourable currency impact. Its core EBIT (excluding one-off nonoperating items) rose by 27% to RM592m, thanks to higher sales, enhanced operational and cost efficiencies, and improved supply chain management, which helped offset the effects of rising input and energy costs.

QoQ, its top line dipped by 7% due to festive phasing in the previous quarter. Correspondingly, its core EBIT fell by 5% to RM159m due to lower revenue, rising sugar prices and net unfavourable forex impact from USD.

Outlook. F&N’s earnings prospects remain positive, supported by the normalisation of economic activities and consumption patterns, the return of international tourists to Malaysia and Thailand coupled with a rebound in export sales. Moving forward, we understand that the group is set to continue navigate market volatility by leveraging its diverse brand portfolio, employing strategic route-to-market initiatives, executing in-store strategies, and maintaining consistent brand building and customer engagement.

Forecasts. We fine-tune up our FY24F net profit by 3% after raising our EBIT margin assumption, and introduce our FY25 numbers.

Consequently, we also raise our TP to RM29.40 (from RM28.45 previously) based on unchanged FY24F targeted PER of 22x, consistent with the industry’s average forward PER. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We continue to like F&N for: (i) robust demand rebound for its products, notably in the beverage and ready-to-drink categories, as economies have restarted and border restrictions lifted, (ii) resurgent export sales driven by competitively priced products, (iii) the steady demand for essential food items, and (iv) the expected recovery in the Thailand market, driven by a revival in domestic consumption and a resurgence in tourism. Maintained OUTPERFORM rating.

Risks to our call include: (i) an uptick in food commodities prices, (ii) sustained high inflation eating into consumer spending power; and (iii) downtrading by consumers i.e. switching to cheaper alternatives.

Source: Kenanga Research - 8 Nov 2023