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Fraser & Neave Holdings Berhad
Weaker 3Q Results
TP: RM33.60 (+17.4%)
Last Traded: RM28.62
Last Traded: RM28.62
BUY
Review
- Fraser & Neave Holdings Berhad’s (F&N) 3QFY25 results came in below expectations, primarily due to a higher-than-expected effective tax rate and weaker EBIT margin.
- For 3QFY25, both revenue and core earnings declined by 4.5% and 39.0% YoY to RM1.2bn and RM79.5mn, respectively. The weaker results were mainly due to: i) the poor performance of F&B Malaysia; and ii) deferred tax assets not recognised in respect of current-year losses incurred by the integrated dairy farm (RM9.2mn), resulting in a higher effective tax rate of 34.4% (+8.2%-pts YoY).
- Cumulatively, despite flat revenue of RM4.0bn, 9MFY25 core earnings declined by 18.0% YoY to RM379.2mn, accounting for 66% of both our and consensus full-year forecasts.
- F&B Malaysia. Quarterly EBIT plunged by 65.1% YoY to RM25.6mn, mainly due to: i) softer revenue of RM679.1mn (-7.0% YoY) in the absence of festive demand amid weaker consumer sentiment; and ii) losses incurred from the dairy farming project. Weighed down by the weaker quarterly performance, 9MFY25 EBIT dropped by 21.5% YoY to RM195.8mn, while revenue slid by 2.2% YoY to RM2.2bn.
- Positively, F&B Indochina remained resilient. 3QFY25 EBIT rose 8.8% YoY to RM114.4mn, primarily due to lower advertising and promotional expenses and the absence of provisions for doubtful debts. Meanwhile, quarterly revenue declined marginally by 1.3% YoY to RM565.7mn, mainly due to cautious consumer sentiment, softening momentum in the tourism sector, and evolving U.S. policy dynamics. For 9MFY25, EBIT improved by 5.8% YoY to RM368.0mn, while revenue increased by 1.8% YoY to RM1.7bn.
- No dividend was declared for the quarter under review.
Impact
- We have lowered our FY25/26/27 earnings estimates by 7.1/10.0/10.0%, respectively, after revising our tax rate assumptions higher by 5.5%-pts to 8.0%-pts for FY25-27F.
Outlook
- As of 1HCY25, Thailand’s foreign visitor arrivals fell by 4.6% YoY, mainly due to a decline in Chinese tourists. This drop was driven by lingering safety concerns, including the earthquake that reached Bangkok in March and fears over scam centres along the Myanmar border.
- However, with increased political stability and the absence of natural hazards, we expect F&B Indochina demand to remain resilient in 4QFY25, fuelled by the gradual recovery in tourism activities over 2HCY25.
- Domestically, the one-off government cash assistance is expected to boost consumer spending in 4Q. Combined with improving demand and stringent cost control measures, we anticipate better operational efficiency for F&B Malaysia in the upcoming quarter.
Share Information
| Bloomberg Code | FNH MK |
|---|---|
| Stock Code | 3689 |
| Listing | Main Board |
| Share Cap (m) | 366.8 |
| Market Cap (RMm) | 10,497.2 |
| 52-wk Hi/Lo (RM) | 32.5/22.4 |
| 12-mth Avg Daily Vol (‘000) | 87.4 |
| Estimated Free Float (%) | 33.0 |
| Beta | 0.5 |
| Major Shareholders (%) | |
| Fraser & Neave Ltd | 55.5 |
| Employees Provident Fund | 12.1 |
| Amanah Saham Bumiputera | 8.0 |
Forecast Revision
| FY25 | FY26 | |
|---|---|---|
| Forecast Revision (%) | (7.1) | (10.0) |
| Net profit (RMm) | 532.7 | 554.5 |
| Consensus | 578.6 | 604.0 |
| TA’s / Consensus (%) | 92.1 | 91.8 |
| Previous Rating | Buy (Maintained) | |
| Consensus Target Price | 33.01 | |
Financial Indicators
| FY25 | FY26 | |
|---|---|---|
| Net debt/equity (%) | Net Cash | Net Cash |
| ROE (%) | 14.4 | 14.1 |
| ROA (%) | 9.6 | 9.6 |
| NTA/Share (RM) | 9.2 | 9.9 |
| Price/ NTA (x) | 3.1 | 2.9 |
Scorecard
| % of FY24 | ||
|---|---|---|
| vs TA | 66 | Below |
| vs Consensus | 66 | Below |
Share Performance (%)
| Price Change | F&N | FBM KLCI |
|---|---|---|
| 1 mth | (1.6) | (0.5) |
| 3 mth | 6.0 | (0.4) |
| 6 mth | 12.6 | (1.5) |
| 12 mth | (5.9) | (5.6) |
(12-Mth) Share Price relative to the FBMKLCI chart area.
Source: Bloomberg
Source: Bloomberg
Valuation
Following the earnings revision, we revise our TP to RM33.60/share (previously: RM34.44), based on a DDM valuation (k: 6.2%; g: 3.0%). Maintain Buy.
Figure 1: Valuation Method
| DDM Valuation | |
|---|---|
| Rf | 3.8% |
| Rm | 9.0% |
| Beta | 0.5 |
| Discount Rate | 6.2% |
| Total NPV (RM mn) | 11,737.6 |
| Share Outstanding (mn share) | 366.8 |
| DDM/share | 32.00 |
| ESG Premium: +5% | 1.60 |
| DDM/share | 33.60 |
Table 1: 3QFY25 Results Analysis (RM’mn)
| FYE Sep 30 (RM’mn) | 3QFY24 | 2QFY25 | 3QFY25 | QoQ (%) | YoY (%) | 9MFY24 | 9MFY25 | YoY (%) |
|---|---|---|---|---|---|---|---|---|
| Revenue | 1,304.1 | 1,334.1 | 1,245.8 | (6.6) | (4.5) | 3,989.4 | 3,969.6 | (0.5) |
| F&B Malaysia | 730.0 | 781.6 | 679.1 | (13.1) | (7.0) | 2,280.3 | 2,230.1 | (2.2) |
| F&B Indochina | 573.3 | 551.6 | 565.7 | 2.6 | (1.3) | 1,706.1 | 1,736.9 | 1.8 |
| Property | 0.2 | 0.2 | 0.2 | 0.5 | 4.6 | 0.6 | 0.6 | 1.0 |
| Others | 0.6 | 0.7 | 0.7 | 2.6 | 8.0 | 2.3 | 2.0 | (13.3) |
| EBIT | 172.8 | 191.8 | 137.0 | (28.6) | (20.8) | 589.7 | 571.7 | (3.0) |
| F&B Malaysia | 73.4 | 73.3 | 25.6 | (65.0) | (65.1) | 249.6 | 195.8 | (21.5) |
| F&B Indochina | 105.2 | 120.2 | 114.4 | (4.8) | 8.8 | 347.9 | 368.0 | 5.8 |
| Property | (0.8) | – | (1.2) | nm | (47.9) | (1.5) | (1.5) | (1.3) |
| Others | (5.0) | (1.7) | (1.9) | (11.0) | 61.7 | (6.3) | 9.4 | nm |
| Adj. EBIT | 181.4 | 194.2 | 131.7 | (32.2) | (27.4) | 594.2 | 554.0 | (6.8) |
| Net Interest | (2.2) | (2.2) | (5.5) | >-100 | (145.9) | (9.0) | (10.1) | (12.3) |
| Extra-Ordinary Items | (8.6) | (2.4) | 5.3 | 316.9 | 161.6 | (4.6) | 17.7 | nm |
| Associates & joint venture | 0.0 | 0.0 | 0.0 | (37.5) | 150.0 | (0.0) | 0.1 | nm |
| Pretax Profit | 170.6 | 189.6 | 131.5 | (30.6) | (22.9) | 580.6 | 561.7 | (3.3) |
| Taxation | (46.9) | (49.6) | (45.3) | 8.8 | 3.5 | (120.9) | (165.0) | (36.4) |
| Reported Net Profit | 121.6 | 140.3 | 84.8 | (39.6) | (30.3) | 457.8 | 396.9 | (13.3) |
| Adj. Net Profit | 130.2 | 142.8 | 79.5 | (44.3) | (39.0) | 462.4 | 379.2 | (18.0) |
| Basic EPS (sen) | 33.2 | 38.3 | 23.2 | (39.6) | (30.3) | 125.0 | 108.4 | (13.3) |
| Dividend (sen) | – | 30.0 | – | nm | – | 30.0 | 30.0 | |
| %-points | %-points | |||||||
| EBIT Margin (%) | 13.3 | 14.4 | 11.0 | (3.4) | (2.3) | 14.8 | 14.4 | (0.4) |
| PBT Margin (%) | 13.1 | 14.2 | 10.6 | (3.7) | (2.5) | 14.6 | 14.1 | (0.4) |
| Net Margin (%) | 9.3 | 10.5 | 6.8 | (3.7) | (2.5) | 11.5 | 10.0 | (1.5) |
| Effective Tax Rate (%) | 27.5 | 26.2 | 34.4 | 8.2 | 6.9 | 20.8 | 29.4 | 8.5 |
Table 2: Earnings Summary (RM’mn)
| FYE 30 Sep (RM mn) | FY23 | FY24 | FY25E | FY26F | FY27F |
|---|---|---|---|---|---|
| Revenue | 5,001.4 | 5,245.6 | 5,325.2 | 5,426.3 | 5,529.5 |
| EBITDA | 789.2 | 854.2 | 991.4 | 1,096.6 | 1,025.5 |
| EBIT | 642.9 | 709.5 | 770.2 | 819.3 | 861.2 |
| Reported PBT | 624.7 | 697.0 | 716.9 | 768.8 | 816.6 |
| Net profit | 536.9 | 542.8 | 532.7 | 554.5 | 589.0 |
| Adj Net profit | 488.3 | 523.4 | 532.7 | 554.5 | 589.0 |
| EPS (sen) | 146.1 | 147.8 | 145.2 | 151.2 | 160.6 |
| Adj EPS (sen) | 132.9 | 142.5 | 145.2 | 151.2 | 160.6 |
| PER (x) | 21.5 | 20.1 | 19.7 | 18.9 | 17.8 |
| Net Dividend (sen) | 77.0 | 63.0 | 78.0 | 85.0 | 91.0 |
| Div Yield (%) | 2.7 | 2.2 | 2.7 | 3.0 | 3.2 |
Sector Recommendation Guideline
- OVERWEIGHT:
- The total return of the sector, as per our coverage universe, exceeds 12%.
- NEUTRAL:
- The total return of the sector, as per our coverage universe, is within the range of 7% to 12%.
- UNDERWEIGHT:
- The total return of the sector, as per our coverage universe, is lower than 7%.
Stock Recommendation Guideline
- BUY:
- Total return of the stock exceeds 12%.
- HOLD:
- Total return of the stock is within the range of 7% to 12%.
- SELL:
- Total return of the stock is lower than 7%.
- Not Rated:
- The company is not under coverage. The report is for information only.
Total Return of the stock includes expected share price appreciation, adjustment for ESG rating and gross dividend. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting.
Total Return of the sector is market capitalisation weighted average of total return of the stocks in the sector.
ESG Scoring & Guideline
| Scoring | Environmental | Social | Governance | Average |
|---|---|---|---|---|
| ★★★★★ | ★★★★ | ★★★★★ | ★★★★★ | ★★★★★ |
| Remark | High conviction in driving energy savings, water stewardship, waste and GHG reduction. It has established F&N Supplier Code of ethic to drive sustainable sourcing while committing itself to fully purchase RSPO palm oil. | Scored highly in community enrichment programmes, and extensive training with emphasis on safety. Leader in driving innovations for healthier food options. | The board is well represented by 55% independent directors and woman representation of over 30%. F&N has also been consistent in returning >50% of profit to shareholders. |
| ★★★★★ (≥80%) | Displayed market leading capabilities in integrating ESG factors in all aspects of operations, management and future directions. | +5% premium to target price |
| ★★★★ (60-79%) | Above adequate integration of ESG factors into most aspects of operations, management and future directions. | +3% premium to target price |
| ★★★ (40-59%) | Adequate integration of ESG factors into operations, management and future directions. | No changes to target price |
| ★★ (20-39%) | Have some integration of ESG factors in operations and management but are insufficient. | -3% discount to target price |
| ★ (<20%) | Minimal or no integration of ESG factors in operations and management. | -5% discount to target price |
