KUCHING: The outlook for Fraser & Neave Malaysia Holdings Bhd’s (F&N) Food and Beverages Malaysia (F&B Malaysia) has been projected to remain challenging while the group’s earnings growth is set to continue on an upward trend, driven by better prospects for F&B Thailand.
In a filing on Bursa Malaysia, F&N highlighted that F&B Malaysia’s operating profit improved to RM133.4 million for the nine months ended June 30, 2019, up by 2.4 per cent from the corresponding period last year.
Meanwhile, F&B Thailand’s operating profit improved by 53.5 per cent (47.6 per cent in local currency) to RM301.4 million for the nine months ended June 30, 2019.
“The outlook for F&B Malaysia remains challenging in view of competitive price pressures and intensifying competition especially in the canned milk segment as well as the beverage segment due to the impact of the sugar sweetened beverages excise duty effective from July 1, 2019,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said in its third quarter of financial year 2019 (3QFY19) results review on the group.
“Nonetheless, we believe that the group’s earnings growth will continue to grow, driven by the better prospect for F&B Thailand following the improvement in both sweetened condensed and evaporated milk segments.”
MIDF Research believed the segment has plenty of room for advancement given the huge market.
“Furthermore, the management effort to continue investing in advertising and promotions will solidify its brand presence.”
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) also noted that moving forward, the F&N’s earnings are expected to be largely buoyed by the group’s F&B Thailand business, which takes up circa 69 per cent of year to date (YTD) operating profit.
Albeit with volatile commodity prices, such as with dairy, which may take a toll on the segment’s margins, Kenanga Research believed the Thai operations will continue to remain sturdy by leveraging on its strong brand presence as a market leader for the growing dairy products such as sweetened condensed and evaporated milk segment.
“On the other hand, while the group has reformulated majority of their beverages in anticipation of the sugar tax which took effect from July 2019, we do not believe the resulting tax will be overly detrimental to demand as we view the net increment to be immaterial,” the research arm said.