F&N’s results below expectations

KUCHING: Fraser & Neave Holdings Bhd’s ( F& N) second quarter of financial year 2018 (2QFY18) and first half of FY18 (1HFY18) results have come in below analysts’ expectations.

In its press release, F&N reported profit after tax of RM92.6 million for 2QFY18, which was down 13.6 per cent year on year (y-o-y). The group’s 1HFY18 profit after tax of RM199.4 million was also down 14.9 per cent, compared to the corresponding period in 2017.

F& N’s 2QFY18 normalised earnings of RM88.7 million accounted for 44.8 per cent and 46.6 per cent of the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) and consensus full year FY18 earnings forecasts, respectively.

“In the last five financial years, the group’s 1H of the year results on average accounted for 60 per cent of full year earnings,” it said.

Meanwhile, the group’s first half of 2018 (1H18) core profit after tax and minority interest ( PATAMI) of RM220.4 million was also below the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) and consensus estimates, making up 53 per cent and 50 per cent of respective full-year estimates.

“2H18 is expected to be weaker from poorer seasonality and festive spending,” Kenanga Research said.

“The negative deviation is due to the slow recovery in Malaysian sales and higher-than-expected production costs.”

On F&N declaring an interim dividend of 27 sen, the research arm noted that this was below its 70 sen full-year estimate as the group typically pays dividends twice a year.

According to Kenanga Research, F& N has since 2017 invested heavily into expanding the group’s production capabilities to improve capacity and solve bottleneck issues.

“Furthermore, margin expansion from better economies of scale was anticipated as supply lines become more fluid.”

However, Kenanga Research believed that difficulty in capturing consumer demand may undermine F&N’s efforts in protecting the group’s bottomline.

“This may be in part due to the high overheads from the more capital intensive system which affected margins at this point.

“In addition, the recovering ringgit may be a going concern for the group as more than 50 per cent of its sales are transacted in foreign currency.”