Review

• Fraser & Neave Holdings Berhad (F&N)’s 3QFY24 results came in within expectations. 9MFY24 core net earnings reached RM462.4mn, accounting for 74% of our full-year estimate and 76% of the consensus forecast.

• 3QFY24 core net earnings dropped by 3.1% YoY, with revenue remaining flat at RM1.3bn (-2.1% YoY). This decline was primarily due to the expiration of the Board of Investment (BOI) incentives for the F&B segment in Thailand, leading to an increase in taxation to RM46.9mn, up from RM17.5mn a year earlier.

• Cumulatively, 9MFY24 core net profit rose 30.7% YoY while revenue grew by 6.2% YoY to RM4.0bn. The commendable results were driven by higher sales and better margins from both F&B segments in Malaysia and Thailand.

• F&B Malaysia. 9MFY24 operating profit surged 71.8% YoY to RM249.6mn, mainly due to better margins from the products mix and lower input costs (except for sugar, rice, gelatine and cocoa powder). Meanwhile, revenue improved by 5.1% YoY to RM2.3bn, primarily driven by stronger festive sales in 1HFY24, which helped offset the weaker revenue in 3QFY24 (-2.5% YoY). Note that rising ocean freight charges have exacerbated sluggish demand in the export market, contributing to the reduced topline in 3QFY24.

• F&B Thailand. 9MFY24 operating profit surged 38.5% YoY to RM347.9mn. The improvement was fuelled by greater sales of RM1.7bn (+7.7% YoY) and lower commodity prices. However, quarterly sales in 3QFY24 decreased by 1.5% YoY to RM573.3mn, primarily due to an unfavourable THB/MYR exchange rate. Notably, quarterly revenue increased by 0.5% YoY in domestic currency (THB).

• No dividend was declared for the quarter under review.

Impact

• We made no change to our earnings projections.

Outlook

• For the final quarter, we expect a slowdown in sales growth due to the lack of festive sales.

• Nonetheless, the GP margin is expected to remain stable, hovering around 30%-32% (3QFY24: 31.1%). This stability is mainly driven by stable commodity prices, with milk powder and palm oil prices being less volatile.

Valuation

• After incorporating the 5-star ESG premium, we assigned a TP of RM34.97/share based on the DDM valuation approach. We have upgraded our Hold recommendation to BUY due to the recent decline in the share price, which presents potential upside.

Source: TA Research - 2 Aug 2024