Review

• Fraser & Neave Holdings Berhad (F&N)’s 1QFY25 core net profit of RM156.9mn came in within our and consensus’ forecast at 27% of the full year estimate.

• In 1QFY25, revenue grew by 4.3% YoY to RM1.4bn, primarily driven by higher sales in both Malaysia (+0.9% YoY) and Thailand (+8.9% YoY). Meanwhile, PBT rose by 17.0% YoY to RM240.5mn, mainly due to an improved sales mix and lower input costs. However, after stripping out the non-operating items, core earnings declined by 7.8% YoY, impacted by higher tax expenses of RM70.1mn following the expiration of Board of the Investment (BOI) incentive for F&B Thailand.

• F&B Malaysia. For 1QFY25, revenue saw a slight 0.9% YoY increase to RM769.3mn, supported by early festive sales of beverage products, which partially offset the slowdown in dairy product sales (including evaporated milk, sweetened condensed milk and milk). With higher sales, operating profit increased by 16.4% YoY to RM96.9mn. The improvement was driven by a better products mix, favourable sugar prices, effective management of tactical discounts, and a recovery in manufacturing overhead due to increased volumes.

• F&B Thailand. 1QFY25 operating profit grew by 5.9% YoY to RM133.3mn, thanks to higher revenue of RM619.6mn (+8.9% YoY). The quarterly sales growth was underpinned by greater demand in domestic and Indochina markets, fuelled by heightened tourism activities and various promotional and marketing initiatives.

• No dividend was declared for the quarter under review.

Impact

• We have made no change to our FY25-27F earnings projections.

Outlook

• During the quarter, management reported that its integrated dairy farm project remains on track, with Phase 1 infrastructure development progressing steadily in preparation for the arrival of livestock. Hence, we believe the first milk production is proceeding as planned, with the latest target set for 1QCY26.

• Going forward, we expect F&N’s topline growth to remain solid in FY25, supported by the resilient growth in tourist arrivals, which will drive greater demand for its operations in Thailand. As a result, we project F&B Thailand’s revenue to grow steadily by 1.7% YoY to RM2.3bn in FY25.

Valuation

• We maintain our Buy recommendation with an unchanged TP of RM34.44/share, based on DDM valuation approach (k: 6.3%; g: 3.0%).

Source: TA Research - 4 Feb 2025