Monday, 9 November 2015

New product launches, cost efficiency measures likely to support F&N’s growth

KUCHING: Fraser & Neave Holdings Bhd’s (F&N) performance will likely be supported by new product launches as well as cost efficiency measures, analysts say.
TA Securities Holdings Bhd’s research arm (TA Securities) highlighted that weak consumer demand will likely intensify the pricing competition in the food and beverage industry.
It also noted that selling costs, especially advertising and promotions associated costs are expected to surge.
Nevertheless, it pointed out that new product launches together with cost efficiency measures could help F&N in mitigating the expected tough operating environment ahead.
Meanwhile, on its full year financial year 2015 (FY15) performance, TA Securities said that the company’s results came in below its estimates.
However, it noted that F&N’s net profit had improved by eight per cent year-on-year (y-o-y) to RM280.1 million, driven by its dairies units (Dairies Malaysia and Dairies Thailand).
“The segment benefited from both, higher sales (Malaysia at three per cent y-o-y, Thailand at 17.7 per cent y-o-y) and improved margin (lower milk-based commodity cost).
“Excluding the fair value loss from investment properties and the gain from foreign exchange, core net profit was slightly higher at RM282 million (an increase of nine per cent y-o-y).
“Operating profit also grew by of 6.5 per cent y-o-y to RM333.9 million, underpinned by improved margin Dairies Malaysia (an increase of 2.5 percentage points y-o-y) and Dairies Thailand (an increase of 1.3 percentage points y-o-y) segment,” it explained.
However, the research team noted that the group’s blended average operating margin was flat y-o-y, as the margin expansion in the dairies units were offset by margin contraction in the soft drinks unit (down 2.2 percentage points y-o-y to 8.4 per cent).
TA Securities commented that the flat soft drinks unit’s performance was likely due to the floods in the east coast of Peninsular Malaysia in the first quarter of 2015 which negatively impacted demand, soft consumer sentiment post-GST implementation, low post-festival sales, higher trade discounts, and loss of two months modern trade sales of Red Bull (contract expired last September).
All in, the research team maintained a ‘sell’ recommendation on F&N for now.

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