Festivities, strengthening ringgit boon to F&N in 2Q
KUALA LUMPUR: Fraser & Neave Holdings Bhd’s (F&N) performance in the second quarter of financial year 2018 (2QFY18) will be driven by upcoming festivities as well as the strengthening ringgit.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) believed that the food and beverage manufacturer’s earnings performance will improve in 2QFY18 thanks to the Chinese New Year (CNY) celebration.
“It will also gain from lower refined sugar cost following from the downtrend of international raw sugar price which fell to 13 cents per pound from a peak of about 20 cents per pound in FY17, and the stronger ringgit will stabilise cost of input materials,” it said in a report.
Kenanga Investment Bank Bhd’s research arm (Kenanga Research) also noted that while F&N could see poorer domestic sales due tighter consumer spending which could continue to hamper top-line growth potential, the strengthening ringgit could help elevate this challenge.
It pointed out that the recently strengthening ringgit is expected to be a boon to the group due to their high raw material imports.
“Despite this, we see this only as a medium term benefit as the group has to clear existing raw material inventories purchased at previously higher forex levels.
“In addition, weaker foreign currencies could offset export gains. At the meantime, we con- tinue to anticipate margin expansions post-FY17 restructuring exercises,” it added.
On the group’s performance in 1QFY18, Kenanga Research saw that F&N’s 1QFY18 revenue fell slightly by two per cent to RM1.07 billion as F&B Malaysia sales dipped by eight per cent due to a later Chinese New Year season.
“This was buffered by stronger F&B Thailand sales (six per cent) from better dairy exports,” it added.
The group earnings before interest and tax (EBIT) fell by circa 20 per cent as both segments were dampened by higher input costs.
However, the research team pointed out that the better operating structure (thanks to postrestructuring exercise) likely lowered operating expenses by 10 per cent.
“Adjusting for one-off restructuring expenses and other items incurred, core net profit registered at RM120.3 million (down seven per cent),” Kenanga Research said.
On a quarter-on-quarter (q-o-q) basis, the research team said the group’s 1Q saw 10 per cent growth in sales following 4Q17 weaker fasting season, albeit supported by the 2017 SEA Games.
“Pre-buying for Chinese New Year festivities are expected to contribute to the revenue growth,” it opined.
Excluding restructuring expenses and one-off expenses, it highlighted that F&N’s operating profit improved by 125 per cent from better operating condition and lower marketing spend. Subsequently, its 1QFY18 core net profit also expanded by 125 per cent to RM120.3 million.
Overall, Kenanga Research pegged a ‘market perform’ call on the stock.
“We believe the anticipation for better operational gains has already been priced in. Nonetheless, the group’s strong operating cash position could allow for further investments for further operational enhancements.”
Meanwhile, MIDF Research maintained its ‘neutral’ call on the stock.