F&N’s debottlenecking programme beneficial
This also mitigates the group’s exposure to the softer domestic market which is suppressed by poor consumer sentiment.
KUALA LUMPUR: Fraser & Neave Holdings Bhd’s (F&N) debottlenecking programme at the group’s dairy plant in Pulau Indah has received a ‘thumbs up’ from analysts.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) was positive with this news, as it is beneficial to F&N’s expansion plan to widen the group’s export presence.
“This also mitigates the group’s exposure to the softer domestic market which is suppressed by poor consumer sentiment,” Kenanga Research said.
Exports account for circa 15 per cent of F&N’s financial year 2017 (FY17) sales and Kenanga Research expected this proportion to improve to circa 16 per cent and circa 18 per cent in FY18 and FY19 from this exercise, respectively.
However, the research arm made no changes to its domestic sales growth assumptions given the slower-than-expected recovery in consumer sentiment indicators.
According to Kenanga Research, the recent strengthening of the ringgit is expected to be a boon to the group due to their high raw material imports.
However, the research arm saw this as a medium term benefit as the group has to clear existing raw material inventories purchased at previously higher forex levels.
“Further, weaker foreign currencies could offset export gains,” it said.
Kenanga Research continued to anticipate margin expansions post-FY17 restructuring exercises.
The research arm noted that this includes strategies such as
Kenanga Research
rationalising storage systems and manpower requirements.
“In addition to this, the progressive rolling out of new production lines as part of its three-year expansion plan should improve production capabilities and efficiency.
“Such projects include expanding its mineral water plant in Bentong and its sweetened condensed milk pouch and tube filling line in Rojana, Thailand.”
Looking ahead, Kenanga Research made minor adjustments to its estimates, accounting for better export contributions from F&B Malaysia operations.
This raised the research arm’s FY18E and FY19E net earnings by 0.4 per cent and 0.9 per cent, respectively.