Review

• Fraser & Neave Holdings Berhad’s (F&N) 4QFY24 core earnings fell below expectations, mainly attributed to higher-than-expected tax expenses and operating costs from the integrated dairy farm.

• Excluding one-off non-operating items, FY24 revenue rose by 4.9% YoY to RM5.2bn, driven by higher contributions from both F&B Malaysia (+3.5% YoY) and Thailand (+6.7% YoY). Supported by higher revenue and lower input costs, core earnings rose by 7.2% YoY to RM523.4mn, accounting for 84% of our full-year estimate and 87% of the consensus forecast.

• Sequentially, 4QFY24 core net profit fell by 54.6% YoY to RM61.0mn due to several factors: (i) start-up costs associated with the integrated dairy farm, (ii) weaker performance in F&B Thailand (-15.5% YoY) due to higher input costs, and (iii) increased tax expenses of RM31.8mn (+39.2% YoY) following the expiration of the Board of Investment (BOI) incentive for F&B Thailand since 3QFY24. However, quarterly revenue rose by 1.0% YoY to RM1.3bn, driven by stronger domestic and export sales from F&B Thailand, which helped offset weaker export sales from F&B Malaysia.

• F&B Malaysia. FY24 operating profit rose by 49.5% YoY to RM305.4mn, on the back of higher revenue of RM3.0bn (+3.5% YoY), lower input costs, and a favourable product/country mix. However, 4QFY24 operating profit declined by 5.5% YoY to RM55.8mn, alongside lower revenue of RM670.5mn (-1.7% YoY). This softer quarterly performance was mainly due to weaker export market demand and rising sea freight charges in 4QFY24.

• F&B Thailand. FY24 revenue increased by 6.7% YoY to RM2.3bn, driven by exclusive distribution rights for BEAR brand sterilised milk in Cambodia, which boosted export sales. Operating profit for FY24 also rose by 21.0% YoY to RM449.9mn, supported by higher sales volumes, lower raw material costs, and logistics savings. In 4QFY24, revenue grew by 4.1% YoY to RM584.9mn, with increased contributions from both domestic and Cambodian markets. However, quarterly EBIT slid by 15.5% YoY to RM102.0mn due to higher promotional spending and rising input costs (palm oil and sugar), which pressured EBIT margins lower by 1.0%- pts YoY to 17.4%.

• A final dividend of 33.0sen/share (4QFY23: 50.0sen/share) was declared for the quarter under review, bringing the YTD dividend to 63.0sen/share (FY23: 77.0sen/share).

Impact

• Maintain our earnings estimates at this juncture, pending an analyst briefing today for further guidance on the FY25 outlook

Outlook

• Going forward, management maintains a cautious outlook for FY25 due to geopolitical tensions and macroeconomic uncertainties.

Valuation

• Reiterate Buy with a TP of RM34.76/share based on the DDM valuation approach and a 5% ESG premium for its 5-star rating.

Source: TA Research - 6 Nov 2024