Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Fraser & Neave Holdings Bhd
Aug 8, RM18.80
Maintain underperform with target price of RM13.10: Fraser & Neave Holdings Bhd's (F&N) profit for 3QFY11 ended June of RM74.2 million, excluding a RM3.7 million gain from the disposal of an ice cream unit, took nine-month core net profit to RM236.9 million. This result is 74% of'' our full-year forecast and consensus estimates. It is also broadly in line with expectations.
We maintain our forecasts and discounted cash flow (DCF) based target price of RM13.10, using an unchanged weighted average cost of capital (WACC) of 7.1%. Valuations are not cheap at 21 to 23 times price earnings ratio (PER), based on FY11 to FY13 earnings, making it the most expensive food and beverage (F&B) player in our portfolio in Malaysia.
Revenue for 3QFY11 of RM882.5 million was 1.2% lower than the RM892.8 million for the corresponding quarter last year. The lower revenue was due to a lower volume of dairy products in Malaysia. The lower revenue consequently contributed to the lower operating cost in 3Q. Despite the lower revenue, the company recorded a higher earnings before interest and tax (Ebit) of RM88.9 million in 3Q compared with RM86.6 million last year due to better margins from soft drink products.
The fourth quarter will be F&N's final production run for Coca-Cola and Sprite. In order to make up for the earnings vacuum, the management plans to expand its product range and market coverage to places such as Brunei and Thailand. However, the management has cautioned there will be an 'inevitable immediate reduction' in revenue and profit as sales of Coca-Cola products will cease on Oct 1, 2011. Coca-Cola and Sprite make up about 30% of F&N's soft drinks revenue.
The local dairy sales sector also recorded flat revenue in 3Q compared with 2Q. Revenue fell 15% for Malaysian operations due to aggressive price competition from producers which still have access to subsidised sugar. F&N is among 13 beverage producers that lost their subsidised sugar from Jan 1 this year. This raised the sugar cost by 60% to RM2.62 per kg. ' CIMB Research, Aug 8
This article appeared in The Edge Financial Daily, August 9, 2011.
Company Name: FRASER & NEAVE HOLDINGS BHD
| Research House: CIMB | Price Call: SELL | Target Price: 13.10 |
Fraser & Neave Holdings Bhd
Aug 8, RM18.80
Maintain underperform with target price of RM13.10: Fraser & Neave Holdings Bhd's (F&N) profit for 3QFY11 ended June of RM74.2 million, excluding a RM3.7 million gain from the disposal of an ice cream unit, took nine-month core net profit to RM236.9 million. This result is 74% of'' our full-year forecast and consensus estimates. It is also broadly in line with expectations.
We maintain our forecasts and discounted cash flow (DCF) based target price of RM13.10, using an unchanged weighted average cost of capital (WACC) of 7.1%. Valuations are not cheap at 21 to 23 times price earnings ratio (PER), based on FY11 to FY13 earnings, making it the most expensive food and beverage (F&B) player in our portfolio in Malaysia.
Revenue for 3QFY11 of RM882.5 million was 1.2% lower than the RM892.8 million for the corresponding quarter last year. The lower revenue was due to a lower volume of dairy products in Malaysia. The lower revenue consequently contributed to the lower operating cost in 3Q. Despite the lower revenue, the company recorded a higher earnings before interest and tax (Ebit) of RM88.9 million in 3Q compared with RM86.6 million last year due to better margins from soft drink products.
The fourth quarter will be F&N's final production run for Coca-Cola and Sprite. In order to make up for the earnings vacuum, the management plans to expand its product range and market coverage to places such as Brunei and Thailand. However, the management has cautioned there will be an 'inevitable immediate reduction' in revenue and profit as sales of Coca-Cola products will cease on Oct 1, 2011. Coca-Cola and Sprite make up about 30% of F&N's soft drinks revenue.
The local dairy sales sector also recorded flat revenue in 3Q compared with 2Q. Revenue fell 15% for Malaysian operations due to aggressive price competition from producers which still have access to subsidised sugar. F&N is among 13 beverage producers that lost their subsidised sugar from Jan 1 this year. This raised the sugar cost by 60% to RM2.62 per kg. ' CIMB Research, Aug 8
This article appeared in The Edge Financial Daily, August 9, 2011.
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