Review

• Fraser & Neave Holdings Bhd’s (F&N) FY23 core net profit of RM488.3mn exceeded both ours and the market’s full-year estimates of 108% and 106%, respectively. The surprises mainly driven by speedy recovery in domestic consumption and favourable forex translation from export sales.

• The group proposed a final interim dividend of 33.0sen/share and special dividend of 17.0sen/share, bringing the cumulative DPS in FY23 to 77.0sen/share (FY22: 60sen/share).

• YoY, FY23’s revenue rose 11.9% YoY to RM5bn, chiefly attributed to meticulous pricing calibration during 2022 and faster-than-expected recovery of market spending. This was backed by robust out-of-home (OOH) consumption as well as growing export sales as a result of favourable forex translation. To note, the FY23 export revenue has surpassed the threshold of RM1.0bn compared to RM0.8bn in FY22. By excluding a remeasurement gain in Cocoaland’s equity interest and other one-off items, the group’s EBIT jumped 28.6% YoY to RM594.3mn, thanks to its strictly abiding margin improvement as well as operational efficiency exercise in line with sales expansion.

• QoQ, the 4QFY23’s topline slid 6.6% QoQ, owing to low seasonality in the quarter under review. That said, the core earnings maintained flattish at RM134.4mn on the back of better supply chain management as well as continuous cost control.

• F&B Malaysia. FY23's revenue witnessed an uptick of 17.9% YoY, driven by a diversified revenue stream due to the acquisition of Cocoaland in November 2022 and the enhancement of OOH consumption through a variety of advertising and promotional strategies, including the repackaging of specific product offerings and the introduction of new products. Additionally, the sales growth was bolstered by increased export volumes to the African, ASEAN, and Chinese regions via businessto-business (B2B) channels. These aforementioned efforts resulted in an adjusted EBIT of RM229.1 million, (+22.9% YoY) amidst implementing cost optimization measures, excluding impairment losses and other oneoff items.

• F&B Thailand. Crediting to a favorable forex translation from Thai Baht to Malaysian Ringgit, F&B Thailand achieved a marginal increase in FY23 revenue, growing by 4.8% YoY. This growth was driven by the company's strong market presence in the sweetened condensed milk and evaporated milk categories, which continued to thrive in the expanding markets of Cambodia and Laos. In line with this top-line expansion, F&B Thailand's operations in Thailand recorded an adjusted EBIT of RM378.3 million, marking a substantial 37.1% YoY increase, which attributed to improved margin control and enhanced operational efficiencies, despite being partly offset by higher input and packaging costs.

Impact

• We maintain our forecast estimations, pending further clarity at an analyst briefing later today. Meanwhile, we introduce our FY26 earnings projections.

Outlook

• As we approach the year-end school holiday and festive season, we anticipate a consistent and strong demand amidst continuous effective margin management to enhance profitability in this challenging environment, particularly considering the persistent high costs of key inputs, especially sugar.

• Looking ahead to 2024, we believe that a moderate price adjustment may be necessary to offset the effects of increasing excise duties on sugary drinks. However, it's worth noting that we do not foresee any significant consequences resulting from this price adjustment, as purchases of readyto-drink (RTD) products are typically driven by impulsive spending.

Valuation

• We maintain Buy with an unchanged DDM-driven target price of RM29.70/share (k: 6.5%; g: 3.0%).

Source: TA Research - 8 Nov 2023