Review

• Fraser & Neave Holdings Berhad’s 2QFY24 core net earnings posted at RM162.0mn (+53.0% YoY). The higher-than-expected results were mainly attributed to the elevated festive demand.

• 1HFY24 core net profit surged 51.3% YoY to RM332.2mn in tandem with revenue growth of 10.7% YoY to RM2.7bn. The commendable results were driven by robust sales and improved margins in both F&B Malaysia and Thailand.

• F&B Malaysia. 1HFY24 operating profit rose 48.5% YoY to RM176.1mn, backed by a 9.1% YoY increase in revenue to RM1.6bn. The improved results were underpinned by higher festive demand (Chinese New Year and earlier Hari Raya sales) and improvement in margin, which was led by favourable input costs (except sugar, rice, gelatine, and cocoa powder) and country mix for exports.

• F&B Thailand. 1HFY24 revenue grew 13.0% YoY to RM1.1bn, which is attributed to favourable THB/MYR forex translation, higher exports to Indochina, and contribution from the pack size of the new launch products. Meanwhile, the operating profit of F&B Thailand grew by 66.3% YoY to RM242.7mn. We believe that higher volumes, lower commodity costs and savings from logistics mainly drove the improvement.

• The group has declared an interim single-tier dividend of 30.0sen/share for the quarter under review (vs. 27sen/share in 2QFY23).

Impact

• Maintain our earnings projections at this juncture.

Outlook

• Moving into 2HFY24, we anticipate a softening in demand due to the absence of festive sales.

• We expect management to be able to cushion the impact of rising input costs for certain commodities (cocoa powder, rice, sugar, and gelatine) through its cost optimisation strategy while offsetting the increase with raw materials that have decreased their peak (palm oil and skim milk powder).

Valuation

• We put our Hold recommendation and target price of RM30.00/share under review pending more insights from an analyst briefing scheduled on 3 May.

Source: TA Research - 2 May 2024