INVESTMENT HIGHLIGHTS

• 2QFY19 normalised earnings rose by +8.8%yoy to RM100.7m, within ours and consensus expectations

• Higher costs led to poor earnings performance from F&B Malaysia

• Thailand’s operations reported significant growth

• Maintain NEUTRAL with an adjusted TP of RM33.78

Earnings within expectations. Fraser & Neave Holdings Bhd’s (F&N) normalised earnings for 2QFY19 came in higher by +8.8%yoy to RM100.7m. Cumulatively, the 1HFY19 normalised earnings came in within ours and consensus expectations which accounted for 50.3% and 52.1% of full year FY19 earnings forecasts respectively.

F&B Malaysia segment impacted by higher costs. The F&B Malaysia segment operating profit for the 2QFY19 dropped by - 29.4%yoy to RM28.2m. The dismal performance was mainly due to: (i) lower canned milk contribution; (ii) higher advertising and promotions expenditure and sales incentives in conjunction with Chinese New Year celebration and; (iii) higher packaging material costs. These are partly offset by favourable input costs mainly for sugar, palm oil and dairy-based commodity.

F&B Thailand posted a significant increase in profit. F&B Thailand normalised operating profit rose significantly by +50.1%yoy to RM99.3m due to the: i) successful execution of push and pull programs in all sales channels in the domestic and Indochina market and; (ii) higher sell-in for Songkran festive season and; (iii) favourable input costs.

Impact to earnings forecast. We maintain our earnings forecast at this juncture.

Interim dividend declared for FY19. The company has declared an interim dividend of 27.0sen per ordinary share for FY19, which will be payable on 13th June 2019.

Source: MIDF Research - 30 Apr 2019