F: Earnings Meet Expectations, Target Price Raised on Resilient Outlook
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM40.50 (+14.5%) |
| Last Traded | RM35.36 |
| Recommendation |
A prominent player in the consumer sector reported first-quarter fiscal year 2026 (IQFY26) core earnings of RM122.7 million, a performance that aligned with both the investment bank’s full-year projections and broader consensus estimates. Despite meeting expectations, the company recorded a 20.4% year-on-year decline in core earnings, primarily influenced by weaker earnings before interest and taxes (EBIT) from its Malaysian and Indochinese operations, alongside a significantly elevated effective tax rate of 36.1%.
Performance Review
In Malaysia, the F&B segment’s revenue demonstrated resilience, growing by 5.6% year-on-year to RM812.4 million. This growth was underpinned by robust demand recovery in East Malaysia, expanded penetration into the HORECA (Hotel, Restaurant, Café) segment, and strong double-digit growth in export sales, notably to Africa. However, this positive top-line performance was tempered by a 10.7% decline in segmental EBIT for F&B Malaysia, largely due to an unfavourable foreign exchange impact totaling RM14.8 million.
The F&B Indochina segment faced more significant headwinds, with EBIT falling 31.8% year-on-year to RM91.0 million. This sharper decline was primarily attributed to a substantial 20.9% year-on-year drop in revenue, adverse foreign exchange impact, and increased overheads linked to the establishment of new manufacturing facilities in Cambodia. Additional challenges included reduced trade stocking, severe flooding in the southern region, and prolonged border closures, all contributing to the weaker turnover in Indochina.
The elevated effective tax rate was a consequence of higher foreign withholding taxes and unrecognised deferred tax assets related to dairy farm losses, impacting overall profitability.
Future Outlook and Strategic Focus
Looking ahead, domestic demand is anticipated to remain resilient, buoyed by upcoming festive sell-in cycles, contributions from newly launched products targeting younger consumers, and wider distribution for key products such as Magnolia fresh milk. Management expects a gradual improvement in operating conditions for F&B Indochina as economic activities normalise and trade channels in Thailand replenish inventory levels.
The group’s overarching strategy centers on stringent cost management, enhancing operational efficiencies, and implementing robust hedging strategies. These measures are expected to effectively cushion potential currency headwinds and foster earnings resilience in the coming quarters, providing a stable foundation for future growth.
Recommendation
Following a reassessment that included a revision of its risk-free rate, TA Securities has reiterated its BUY recommendation for the stock. The investment bank has concurrently raised its target price to RM40.50 per share, an increase from the previous RM39.06 per share. This revised target price, derived from a Dividend Discount Model (DDM) valuation, suggests a potential upside of 14.5% from the last traded price of RM35.36, reflecting confidence in the company’s strategic direction and resilient outlook.
