Review

• Fraser & Neave Holdings Berhad’s 1QFY24 core net earnings of RM170.2mn (+49.7% YoY) came in within our and consensus’ full-year estimates at 31.3% and 32.9% respectively.

• 1QFY24 revenue improved 9.4% YoY to RM1.33bn while core net profit soared by 49.7% YoY to RM170.2mn. We believe the better performance was driven by improved sales in both Malaysia and Thailand. This was further supported by cost optimisation, leading to better earnings performance (stabilisation in raw materials cost, easing in third-party logistics cost).

• F&B Malaysia. Revenue up 6.9% YoY to RM762.6mn (from RM681.8mn) supported by the improvement in dairies and food segment and higher exports. Adjusted net profit rose 20.7% YoY to RM79.0mn backed by better sales and favourable input cost (skim milk powder and palm oil).

• F&B Thailand. Revenue for the quarter grew 12.9% YoY to RM569.1mn (from RM504.2mn) credited to favourable MYR/THB forex translation and a rise in domestic sales which supported by higher tourist arrivals. Meanwhile, the operating profit of F&B Thailand experienced an 85.4% YoY surge to RM125.9mn (from RM67.9mn). We believe that the improvement was mainly driven by the depletion of commodity inventory with higher costs and the shift in the business model of the Cambodia market from exports to local manufacturing and distribution, leading to savings in supply chain cost.

Impact

• No changes to our earnings forecast.

Outlook

• Sales for 2QFY24 are expected to remain strong, driven by seasonal demand during the CNY period and resilient growth in tourist arrivals in Thailand. According to Ministry of Tourism & Sports (Thailand), CY23’s international tourist arrivals reached 28.2mn (+152.4% YoY, from 11.1mn), marking the highest number of foreign tourists after post-Covid- 19 pandemic (Appendix 1). The Ministry aims to reactivate the tourism sector with 30.0-35.0mn international tourists by CY24 hence we anticipate that this recovery will strengthen the F&B Thailand’s out-ofhome channel.

• The current sugar price remains high, despite the key raw materials (skim milk powder and palm oil) being less volatile compared to CY21-22. However, we believe that the group able to cushion the impact with its cost management strategies and sustain its current gross margin of 31.5% (+1.6%-pts QoQ) which has returned to pre-Covid levels.

Valuation

• Reiterate Hold with an unchanged target price of RM30.00/share based on DDM valuation (k: 6.6%; g: 3.0%).

Source: TA Research - 2 Feb 2024