Analysts: Poor Q1 catalyst for F&N re-rating

Thursday February 9, 2012

Analysts: Poor Q1 catalyst for F&N re-rating
By LIZ LEE
lizlee@thestar.com.my



PETALING JAYA: Fraser & Neave Holdings Bhd's (F&N) poor first quarter results could cause a re-rating of the blue chip company but analysts see its current position as a temporary recovery phase before it bounces back to solid earnings.

For the first quarter ended Dec 31, 2011, the company recorded a 61% drop in net profit to RM41.75mil from RM107.08mil in the last corresponding quarter, a situation CIMB Research sees as a re-rating catalyst.

The two main factors pulling F&N's earnings down included the disengagement from its Coca-Cola business and operating losses caused by the Thailand floods last year. Coca-Cola contributed 30% to F&N's earnings.

The results were below CIMB Research's expectation at 14% of it's full-year forecast. The research house said a 20% to 25% achievement would be considered “within expectation”.

An analyst with a bank-backed brokerage said that he would be negative on the counter for the next one to two quarters, and had given a “sell” call.

“Their Thai dairy plant will begin operation in phases in March and it would take two to three months to ramp up production. I expect the sales volume to be on the lower side until May or June,” he said.

“The company is making the effort to plug its financial leakages with new soft drinks but at the expense of its margin as it spent a lot on advertising and promotion,” he said. F&N made a 9% increase in soft drinks revenue during the first quarter.

He noted that while F&N might have ways to support its operations over the longer term through the mixed development of its land in Section 13, Petaling Jaya, the outlook was not rosy in the near term.

The land, where the old factory used to be, is slated for development in 2013.


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