Analysts cautiously optimistic on F&N’s outlook

KUALA LUMPUR: Analysts are cautiously optimistic about Fraser & Neave Holdings Bhd’s (F&N) outlook despite the possibility of the group incurring higher operating cost in the financial year 2017 (FY17).

In a recent strategy report, CIMB Investment Bank Bhd’s research arm (CIMB Research) said, “Going forward, we remain cautiously optimistic on the group’s earnings growth prospects as it continues to focus on expanding its market share via product innovation, and investing to expand production capacity.”

It opined, “We believe F&N will continue to defend its market share via production innovation and expect demand for dairies to remain resilient for Thailand and Malaysia.”

Of note, F&N closed off a strong FY9/16, with core net profit advancing 29 per cent year-onyear (y-o-y) on the back of lower input costs as well as strong growth for its dairies and exports segments.

“While revenue for Malaysia dipped 2.6 per cent y-o-y, F&N still managed to chalk up positive y-o-y volume growth for both its dairies and soft drinks as a result of successful promotional consumer campaigns that helped the group defend its market share,” CIMB Research said.

In view of the mature domestic market for condensed and evaporated milk, where growth is only expected to grow at a single-digit pace, the research team noted that F&N planned to export more of its dairy products to fully utilise its dairies’ capacity.

“The group’s exports experienced double-digit sales growth in FY16 and currently make up circa 10 per cent of its total revenue. The group currently has established routes to China, Hong Kong and Macau with newly-added markets such as the US and the West Africa region,” it said.

For the group’s raw material price outlook, the research team said, F&N has fully hedged and locked in its milk input costs and forex requirements until end-2017.

It added, the group has not hedged its sugar requirements and thus has stated that it could potentially look into any positive price actions in 2017, to mitigate and digest the significant spike in sugar costs.