KEY INVESTMENT HIGHLIGHTS

• 12MFY24 results came in within expectation
• Proposed final dividend of 33 sen per share, totaling 63 sen for FY24
• Subdued Q4FY24 Performance
• Strong demand in Malaysia and F&B Thailand
• Maintain FY25-26F earnings forecast; introduce FY27F projections
• Maintain BUY with a higher TP of RM40.47 (from RM37.00)

Within our expectation. Fraser & Neave Holdings ("F&N") reported a 12MFY24 core PATANCI of RM562.1m, after excluding a one-time off item. This aligns with our FY24F full-year projection but came in slightly below consensus estimates, accounting for 96%/94% respectively. The company proposed a final single-tier dividend of 33sen per share, bringing total dividend payout for FY24 to 63 sen per share, compared to the previous year's total of 77 sen per share which included a special dividend. That translates into dividend yield of 2%.

Subdued 4QFY24 performance. Core net profit in 4QFY24 dropped by -19.4%yoy to RM108.4m, dragged by higher tax expenses and increased withholding taxes on dividends repatriated from Thailand. Operating profit was further impacted by costs associated with the integrated dairy farm startup, restructuring expenses, and lower contributions from F&B Thailand. On a quarterly basis, core net profit dropped by -10.9%qoq reflecting the aforementioned factors and a sales growth decline of - 3.7%qoq. Consequently, EBIT fell by -30.7%qoq to RM119.9m, reflecting one-off restructuring costs.

F&B Malaysia and Thailand fuel revenue growth despite Q4 setbacks. Despite lower earnings in 4QFY24, F&N concluded FY24 with improved core earnings of +15%yoy. That was driven by a 4.9%yoy increase in revenue to RM5.25b, supported by steady gains across both F&B Malaysia (+3.5%yoy) and F&B Thailand (+6.7%yoy). In Malaysia, domestic demand remained strong, bolstered by effective marketing campaigns and expanded distribution networks. The food segment also contributed significantly to this growth, supported by key initiatives and deeper market penetration. Meanwhile, F&B Thailand benefited from a boost in domestic sales and higher exports to Cambodia following the exclusive distribution rights for BEAR BRAND milk. Meanwhile, the Group's core EBIT expanded by +10.4%yoy to RM710m, aided by an improved product mix and operational efficiencies, despite global logistical challenges and geopolitical uncertainties.

Outlook. Looking forward, F&N remains focused on maximizing efficiencies within its core businesses while driving new growth through its F&N AgriValley project. The integrated dairy farm in Gemas faces a recent setback due to a delayed shipment of livestock from the US, initially planned for October 2024, after concerns over HPAI H5N1. Despite this, the farm's development is on track, with the Group exploring solutions to address the delay. F&N's commitment to growth is further underscored by new production investments, including a manufacturing plant in Cambodia and additional production lines in Malaysia for carbonated beverages, drinking water, sterilized milk, and chocolate.

Maintain BUY with a higher TP of RM40.47. We maintain our FY25-26F earnings forecast and introduce our FY27F projections. We reiterate our BUY rating on F&N with an increased target price (TP) of RM40.47, despite no adjustments to our earnings forecast. This revised TP is based on an updated PE valuation from a 3-year to a 5-year historical to better align with the medium-term outlook, applying a PER of 22.5x to FY25F EPS of 179.9 sen. We remain optimistic about F&N's prospects supported by sustained out-of-home beverage demand, a rebound in tourism to Thailand and Malaysia, and shifting consumer preferences toward local brands. Additionally, the expected lower input costs such as sugar and pet resin should support margins, while the group's integrated dairy farm is set to enhance self-sufficiency in Malaysia's fresh milk market. Looking ahead to 1QFY25, we anticipate revenue growth from consumer stockpiling for the holiday and festive season.

Valuation. F&N is currently trading at FY25F PER of 17.2x vs. its 5-year historical average 22.5x, while offering a dividend yield of 2.5% in FY25F. Downside risks are: (1) a further increase in commodity prices (tin plates, milk, palm oil, sugar, pet resin), and (2) fluctuation in currency rates (THB and USD).

Source: MIDF Research - 6 Nov 2024