Research houses expect impact of higher input costs to persist on F&N

KUALA LUMPUR, Aug 4 (Bernama) -- Fraser and Neave Holdings Bhd’s (F&N) third-quarter financial year 2022 (Q3 FY2022) came in below expectations, with research houses projecting the impact of higher input costs to persist in the short term.

CGS-CIMB said higher commodity prices remain a key concern for F&N in Q4 and will put margins under pressure.

“With Q3 results below estimates, we cut our FY2022-2024 earnings per share by 6.1-6.2 per cent to account for higher input costs and lower dairy sales,” it said in a note today.

It also reduced its target price to RM25 per share but still kept an ‘add’ call on F&N backed by its attractive valuation, strong balance sheet and recovery in HORECA (hotel, restaurant and cafe) sales with the easing of Covid-19 lockdown measures.

CGS-CIMB said the company can alleviate some impact with higher sales, especially from recovery in HORECA sales, increase in tourist arrivals in Thailand and Malaysia, as well as further price hikes.

MIDF Research said it has revised its earnings estimates by -9.2 per cent for FY2022 and -3.3 per cent for FY2023, after accounting for the decreased operating profit in Food & Beverages Thailand because of rising raw material costs and the company's limited ability to fully pass on the higher input costs to customers as its products are on the Thai government's price control list.

Nevertheless, it has maintained a ‘buy’ call on the company with a lower revised target price of RM29.70.

“We continue to like F&N underpinned by its consistent product innovation to meet consumer demand and taste, the recent proposed acquisition of Ladang Permai Damai and Cocoaland, which could fuel its future earnings growth and effective cost management to mitigate the effects of rising commodity and logistics costs.

“Key downside risks for F&N include raw material shortage, further depreciation of the ringgit and Thai baht against the US dollar, which could put more pressure on costs and a sharp increase in commodity prices,” it noted.

Kenanga Research has lowered its target price by 12 per cent to RM23.15 to reflect a higher risk premium for the industry as a whole in a potentially prolonged elevated high inflationary environment.

It also downgraded F&N to ‘market perform’ from ‘outperform.

“We maintain our view of a robust and sustained topline ahead. Despite the prevalent headwinds, the encouraging momentum of economic activities recovery will continue to drive sales ahead, particularly for beverages, ready-to-drink products, out-of-home and HORECA channels.

“Rising input costs are the only dampening factor with leading indicators showing input prices looking to remain elevated well into 2023,” it added.

F&N’s net profit rose to RM97.50 million in Q3 from RM96.16 million a year ago as improved sales in Malaysia and price adjustments helped to mitigate pressures from Thailand's operation and export markets. 

Revenue rose to RM1.12 billion from RM1.06 billion, it said in a filing with Bursa Malaysia yesterday. 

-- BERNAMA