F&N peaks at five year high as future investments on track

F&N peaks at five year high as future investments on track

07 May 2024

Shares in Fraser & Neave Holdings Bhd (F&N) reached a new high seen in five years following the group’s positive results.

The share rose by three sen or 96 sen to RM32.96 per share as of time of writing, which is the highest seen since April 2019.

According to MIDF Amanah Investment Bank Bhd (MIDF Research), F&N’s management alluded that the expansion of manufacturing operations to Cambodia is a pivotal future investment for the group.

This entails shifting production of sweetened condensed milk from the current Thai import operation to facilities within Cambodia.

“Given that export sales to Cambodia reached RM200 million per annum, establishing a new manufacturing plant closer to the market emerges as a pragmatic approach to capture the growing demand, minimise product delivery time, logistical expenses, and supply-related risks,” it said in its analysis.

“Recall that the group entered a lease agreement for a parcel in Cambodia on February 15, 2024.

“Management highlighted that the moderation of skimmed milk powder prices has benefited F&B Thailand the most and more than mitigated the impact of higher sugar prices in F&B Thailand.”

Meanwhile, the analysis saw that the impact of higher sugar prices was greater in F&B Malaysia as opposed to rising rice, gelatin and cocoa powder prices.

The contribution of rice is merely for Sri Nona Ketupat products, meanwhile gelatin and cocoa powder merely used for Cocoaland’s products.

Note that food pillar (Sri Nona and Cocoaland) only contributed about six per cent of total revenue.

“Cost optimisation is preferred rather than a price hike,” RHB Research said.

“Despite the elevated prices of certain input costs, the normalization in most raw materials, coupled with various price hikes completed in FY22 to FY23, has offset the impact.”

Recall that the group increased ketupat and gummies bear prices in FY23.

“As such, management does not foresee any price hikes in the near term and instead would focus on cost optimisation, with a price hike being considered only as a last resort.”

Meanwhile, F&N’s integrated dairy farm project on track. The group allocated a total capex of RM1.7 billion for Phase 1 of the integrated dairy farm in Negeri Sembilan and expects to allocate RM1 billion for Phase 2.

The group has completed the land preparation for key activities on 1,000 acres with the expectation to complete the land preparation for all 2,000 acres by October 2024. The first milking remains unchanged by early 2025.

The integrated dairy farm targets 2,000 dairy cows in the first phase (shipped from a US avian-free state) with a total production capacity of 100 million litres per annum.

“We are positive about F&N’s outlook mainly underpinned by the robust out-of-home beverages consumption; return of leisure and business tourists to Thailand and Malaysia; normalise certain raw material input costs; and benefit from the shift in Malaysian consumer preferences towards local brands.

“We also commend the group’s initiative in the integrated dairy farm to improve self-supply (cost savings) and to cater to the underserved fresh milk market with affordable prices in Malaysia.”

Source: Borneo Post