MIDF Research maintains "buy" call on F&N

KUALA LUMPUR, April 28 (Bernama) -- MIDF Amanah Investment Bank Bhd (MIDF) has maintained its “buy” call on Fraser and Neave Holdings Bhd (F&N) with an unchanged target price of RM30.03.

In a note today, the investment bank said the group’s revenue increased marginally by 1.5 per cent year-on-year (y-o-y) to RM1.1 billion in the second quarter of financial year 2022 (Q2 FY22), amidst the recovery in economic activities.

“Revenue for F&B Malaysia grew by 9.0 per cent y-o-y to RM615.1 million, led by higher sales from the Chinese New Year festivities, easing of movement restriction measures and strong promotional activities.

“Sales of dairy products registered improved revenue despite a lower volume following a price adjustment to factor in the higher input costs,” it said.

It added that the higher sales, improved margins from price adjustment and prudent cost management helped ease pressures from higher input and freight costs, and contributed to higher operating profit for F&B Malaysia by 71.3 per cent y-o-y.

Nevertheless, it noted that key downside risks to its “buy” call include unfavourable ringgit to Thai Baht translation, an increase in raw material prices, and disruptions in the supply chain.

“Earnings outlook for the group is estimated to remain tepid in the near term due to the challenging business environment.

“We think that the strategic capital expenditure allocations will take time before resulting in meaningful earnings translation,” said MIDF.

Meanwhile, Kenanga Investment Bank Bhd said as expected, F&N posted a robust top-line performance but a weaker Thai Baht saw contribution from its Thailand operation heading south.

“With the easing of movement controls, we expect sales to continue to be robust in the coming quarters, but downside pressure on margins looks to persist well into FY23,” the research firm said.

As such, it had reduced the target price for F&N’s shares to RM26.30 as it expects the latter’s earnings to remain under pressure on elevated inputs costs and higher capex.

“Still undervalued, we maintained our ‘outperform’ call on F&N,” it added.

F&N registered a lower net profit of RM93.87 million in Q2 2022 ended March 31, 2022, from RM103.51 million in Q2 2021 amid commodity price pressures and unfavourable foreign exchange translation. 

Revenue, however, was higher at RM1.11 billion from RM1.09 billion previously as the positive momentum from the recovery of economic activities in Malaysia moderated the dampened demand in Thailand due to the COVID-19 Omicron variant outbreak.

At 10.30, F&N shares fell four sen to RM22.96 with 16,900 units traded.

-- BERNAMA