Wednesday, May 22

F&N regains momentum, post-transformation

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F&N saw an improvement in its earnings for 1Q19, lifted by its improved costs efficiency. — Reuters photo

KUCHING: Fraser & Neave Holdings Bhd (F&N) saw an improvement in its earnings for the first quarter of 2019 (1Q19), lifted by its improved costs efficiency.

In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that F&N’s normalised earnings for 1QFY19 came in higher by 15 per cent to RM122.9 million.

“F&B Malaysia segment’s normalised operating profit for the 1QFY19 increased by 33.8 per cent y-o-y to RM154.1 million.

“Post-transformation exercise, the segment managed to record third consecutive quarter of positive growth albeit at a moderating pace.

“The strong performance was mainly due to the earlier Chinese New Year festive sell-in for beverage products coupled with lower discount and favourable input cost for sugar, palm oil and dairy-based commodity,” it highlighted.

However, it also noted that these are partly offset by the higher packaging material costs.

Similarly, it said, F&B Thailand 1QFY19 normalised operating profit rose by 36.5 per cent y-o-y to RM72.7million.

“This is mainly driven by the higher export revenue from market expansion and execution of promotional campaigns in the Indochina region such as Cambodia and Laos as well as favourable raw material
costs.

“Nonetheless, F&B Thailand has commenced paying corporate taxes starting this quarter as it has fully utilised the promotional tax incentive awarded by the Board of Investment,” it explained.

“Despite the challenging domestic market condition in view of competitive price pressures and intensifying competition, we believe that the group’s earnings growth will continue to grow, driven by the continued strong export growth, and improved cost efficiency as a result of cost optimisation efforts.

“In addition, we expect that the impeding excise duty at RM0.40 per litre on ready-to-drink beverages that contain sugar exceeding 5.0g per 100 millilitres, starting from April 1, 2019, will have a minimal impact on F&N‘s bottom line due to the lower overall contribution of soft drink segment to the group’s earnings and ongoing reformulation of the sugar content for most of its products to be below five per cent while maintain the same tastes,” MIDF Research opined.

All in, the research team maintained a ‘neutral’ stance on the stock.