SINGAPORE (Nov 13): Phillip Capital has upgraded its call on Fraser and Neave (F&N) from “neutral” to “accumulate” with a higher target price of $2.83 from $2.52 previously.
In a Monday report, analyst Soh Lin Sin observes that F&N has been gaining a stronger foothold in Vietnam via Vinamilk as a Vietnam Dairy Products joint stock company.
At the same time, she highlights how the Dairies segment continued to deliver strong growth over FY17, underpinned by a strong performance in Dairies Thailand as well as a significant increase in contributions from Vinamilk.
See: F&N's FY17 earnings soar to $1.3 bil on fair value adjustment and exceptional items
See also: Jardine C&C to acquire 5.5% stake in Vinamilk for $839 mil
The analyst nonetheless remains cognisant of higher finance costs, losses in Beverages and P&P, and brand investments in New Markets which dampened group earnings over the financial year, in addition to the challenges which remain for the group in Malaysia due to rising costs, cautious spending, intensified competition and a weaker MYR against the SGD.
As such, Soh is cautiously optimistic on the trading environment for F&N in Malaysia, Singapore and Thailand as it continues to reinvest its earnings into brand-building efforts in New Markets, namely in Myanmar, Vietnam and Indonesia, adding new avenues for growth.
“We trimmed FY17e revenue by 6% on as we expect subdued demand in Malaysia to extend into FY18E. The upcoming general election in Malaysia which could further weigh against consumer sentiment and Ringgit’s strength,” says Soh.
“Nonetheless, we adjusted FY18E earnings upward by c.59%, on the back of continuous support from Dairies; benefits from restructuring initiatives to realise; and higher profit sharing from Vinamilk with full 12 months contribution in FY18E. [We expect] Vinamilk to continue to drive over 40% of the group’s EBIT moving forward,” she adds.
As at 12:25pm, shares in F&N are trading flat at $2.60, or 1.3 times FY18 book value.
