F&N’s 9MFY24 results met expectations. Its 9MFY24 core net profit jumped 30% YoY thanks to a favourable product mix, lower input cost and enhanced efficiency. We believe F&N may continue to benefit from consumers opting for Asian brands. We keep our forecasts relatively unchanged and maintain our TP of RM38.25 and OUTPERFORM call.

F&N's 9MFY24 core net profit of RM454m came in within expectations at 74% and 75% of our full-year forecast and the full-year consensus estimate, respectively. As expected, no dividend was declared during the quarter. For the full financial year, we expect the group to declare a total dividend of 85 sen (1HFY24: 30 sen, FY23: 77 sen), implying a dividend payout ratio of 51%, in-line with its historical trend.

YoY, its 9MFY24 revenue grew by 6% with Malaysia sales rising 5% (driven largely by higher sales during the 1H and continued momentum across all channels, underpinned by various marketing campaigns and increased outlet penetrations) and Thailand’s by 8% (driven by the successful launch of new product pack sizes, higher exports to Indochina (Bear Brand) and favourable forex movements. Its core net profit jumped by a steeper 30% due to lower input costs and a favourable product/country mix.

QoQ, its top line decreased by 4%, coming off from a seasonally strong 2Q (Jan-Mar) due to festive buying. Its core net profit fell by a sharper 17% due to higher input costs.

Outlook. We believe F&N may continue to benefit from consumers opting for Asian brands (vs. the Western ones) and will continue to be buoyed by the return of tourists to Malaysia (boosting its domestic sales), and Thailand (boosting its export sales). We also like its focus on the high-growth Halal packaged food and dairy products while the streamlining of the manufacturing facilities of Sri Nona and Cocoaland should boost efficiency and hence the bottom line.

Forecasts. Relatively unchanged.

Valuations. We also maintain our TP of RM38.25 based on an unchanged 22x FY25F PER, consistent with the industry’s average forward PER. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us (see page 4).

Investment case. We continue to like F&N for: (i) its earnings defensiveness given the stable demand for essential food items despite high inflation and an uncertain global economic outlook, (ii) the rising popularity of ready-to-drink products where F&N has a strong presence, (iii) proxy to the recovery of domestic consumption and the return of tourists in Thailand, and (iv) its long-term growth prospects driven by its investment in a sizeable dairy farm in Gemas, Negeri Sembilan. Maintain OUTPERFORM.

Risks to our call include: (i) an uptick in food commodity prices, (ii) sustained high inflation eating into consumer spending power, and (iii) downtrading by consumers i.e. switching to cheaper alternatives.

Source: Kenanga Research - 5 Aug 2024