KEY INVESTMENT HIGHLIGHTS

• 9MFY20 profit of RM324.9m met expectations

• Core net earnings for the period declined by 16.2%yoy due to Covid-19 as its main markets are under lockdowns

• 3QFY20 earnings fell by 16.2%yoy to RM94.3m in-line with sales that dropped by 13.9%yoy

• Expect brighter outlook going forward

• Maintain NEUTRAL with an adjusted TP of RM32.92

9MFY20 profit of RM324.9m met expectations. Fraser & Neave Holdings Bhd’s (F&N) earnings for 9MFY20 were in-line with our expectation at 72% of our full year estimates and 79% of consensus’. No dividend was announced during the quarter.

Core net earnings for the period declined by -16.2%yoy due to Covid-19 as its main markets are under lockdowns. Core net income (CNI) of RM324.9m was recorded as revenue slipped by - 2.2%yoy to RM3.0b. The subdued consumer demand and the Covid-19 pandemic outbreak dragged F&B Malaysia revenue down by -7.3%. This was, however, mitigated by the +25%yoy growth in the exports for the first half of the financial year. As a result, operating profit for the segment in 9-months declined by -22.5%yoy due to lower sales, higher dairies input costs and higher marketing expenditure for new products such as 100PLUS Zero, Sunkist Pure Juice drink and F&N Ice Mountain Sparkling Water. As for F&B Thailand, revenue improved by +3.6%yoy to RM1.49b due to stronger baht to ringgit exchange rate. Operating profit rose by +2.2%yoy in tandem with the higher segmental revenue. However, in Thai baht terms, sales softened by -1.3%yoy due to Covid- 19 while operating profit declined by -2.1%yoy due to lower sales and higher marketing costs for new product launches. During the period, new variants of TEAPOT sweetened condensed milk squeeze tube in Matcha and Mango were launched. It also launched CARNATION and TEAPOT evaporated milk in 1kg pouch, CARNATION Plus 0% Fat sweetened condensed milk and Magnolia Milkies, which are milk tablets made of New Zealand milk.

3QFY20 earnings fell by -16.2%yoy to RM94.3m in-line with sales that dropped by -13.9%yoy. Due to the Movement Control Order (MCO) in Malaysia that occurred in 3QFY20, revenue for F&B Malaysia decreased by -19.3%yoy to RM461.4m. Operating profit for the segment plunged by -42.5%yoy to RM30.3m due to lower sales volume, higher raw material costs and higher marketing spend for new product launches. Sales for the domestic operations lost -21.2% due to the muted Hari Raya festive season, which adversely affected beverages sales. Since the easing of the MCO restrictions starting early May, sales and stock movement are improving. That said, the Hotel, Restaurants and Cafes channel are still severely impacted albeit recovering gradually. This is mitigated by its modern trade channel. Marketing and promotional activities were done on F&N Life e-commerce store. In Thailand, export sales growth of +14.9% offset local sales contraction of -11.1% in Thai baht terms

Source: MIDF Research - 5 Aug 2020