FRASER & Neave Holdings Bhd (F&N) is widely expected to weather near-term headwinds emanating from the COVID-19 pandemic relatively unscathed.
This is underpinned by its (i) diverse geographical operations, (ii) robust financial muscles with net cash position, (iii) strong export sales momentum, (iv) healthier and better value product offerings along (v) pursuit to improve processes and capacities, according to TA Securities Research.
Although F&N saw its operating earnings dropped 2.2% year-on-year (yoy) n FY2020, the company remained largely resilient with its sturdier Thai operations posting 5.3% yoy operating earnings growth which partly mitigated earnings weakness of its Malaysian operations (-10.0% yoy).
“We take this as the group’s core competence in its diverse geographical operations that helped to reduce earnings volatility,” wrote analyst Jeff Lye Zhen Xiong in a company update following a virtual analyst briefing.
Moving forward, the research house is not unduly concerned with the political unrest in Bangkok currently – even bearing in mind the declaration of emergency for the period of Oct 14-22 – as it expects the impact to be marginal considering that F&N’s products are mainly food ingredients where demand is resilient.
“More importantly, its productions facilities in Thailand are not damaged or disrupted in this political unrest,” observed Lye.
On the overall, TA Securities Research opined that the group’s continuous drive for greater economies and scale, cutting-edge capabilities and improved operational efficiency would enable pricing flexibility and differentiating product features that lead to a strong and sustainable business for the future.
While TA Securities Research maintained its “buy” rating on F&N with a target price of RM40.00/share based on the abode-mentioned factors, MIDF Research retained its “neutral” stance on F&N with an unchanged target price of RM31.48 on grounds of weaker consumer sentiment.
“We believe that the company is likely to see recovery in 2021 but we take note of the subdue consumer sentiment and possibly weaker festivity mood in the near-term which may dampen sales,” noted analyst Ng Bei Shan.
However, MIDF Research is impressed with F&N’s ability to strengthen its export sales which now makes up 20% of its total sales compared to 17.9% in 2019.
Like TA Securities Research, the research house also opined that the group’s geographical diversification will be beneficial as sales can be cushioned by other markets in case there is softening in its main markets, namely Malaysia and Thailand.
“For instance, the exports to IndoChina market has lifted sales for Thailand F&B,” added Ng.
At 9.30am, F&N was up 22 sen or 0.71% at RM31.30 with 600 shares traded, thus valuing the company at RM11.45 bil. – Nov 5, 2020
