F&N on road to recovery as virus restrictions lifted


FRASER & Neave Holdings Bhd (F&N) remains cautious given the challenging market conditions and ongoing global uncertainties due to the pandemic and only expects the market to return to the pre-pandemic in a while, and thus will emphasise on innovation to further increase its performance.

“Exports will continue to be a key focus moving forward for both F&N Malaysia and F&N Thailand. We will not shy away from investing in the capability to tap into new opportunities, be it for our own branded exports or key original equipment manufacturer customers,” CEO Lim Yew Hoe said in a media interview last Friday.

Responding to question regarding the increase of sugar tax announced by the government in Budget 2022, Lim said it will have little impact on the fast-moving consumer goods company.

“Most of our products do not fall into this category, so the impact should be rather small compared to other companies,” he said.

He added that the company was uncertain of the impact of “Cukai Makmur” or prosperity tax announced in Budget 2022 until further clarifications are obtained.

“We are still unclear on how the ‘Cukai Makmur’ will be implemented, we are still checking on the details to understand whether it will impact overseas income or whether it will cover the dividends that we receive from our operations in Thailand,” he said.

The one-off tax initiatives by the government will see companies with taxable income of more than RM100 million be taxed at a rate of 33%, in comparison to its previous flat rate of 24%, noting it as not a big concern to the group.

The first RM100 million of profit will be taxed at the 24% rate.

F&N posted a contraction in its annual net profit to RM395.1 million for the financial year ended Sept 30, 2021 (FY21), compared to RM410.1 million in FY20.

The group attributed the lower earnings year-on-year (YoY) to higher commodity prices, lower export margins, restructuring and Covid-related expenses, and a lower share of profit from an associate.

For FY21, F&N recorded a profit before tax (PBT) of RM479.4 million versus RM522.9 million profit in FY20.

The 3.7% decline in the group’s profit for the year was partially mitigated by investment tax incentives in Thailand and deferred tax assets recognised for Malaysia.

Group’s revenue for FY21 grew 3.6% YoY to RM4.13 billion driven by a strong export performance by both Malaysia and Thailand, as well as nine months of contribution from the food business.

Lim said FY21 was very difficult in aspects of cost and demand but its diversified product and geographical presence were the key for the group’s resilient performance for the year.

“We remained steadfast in our long-term priorities and launched a fourth business pillar, our Halal packaged food products, with the acquisition of Sri Nona Food Industries Sdn Bhd. During the year, we also aligned our business needs with opportunities presented by Covid-19 and digital technology.

“Effective cost management partially mitigated higher commodity prices and higher freight and warehouse costs,” he said.

CGS-CIMB Securities Sdn Bhd stated that F&N Malaysia business is unlikely to be affected by the implementation of Cukai Makmur and does not expect any single subsidiary of F&N Malaysia operations to record more than RM100 million PBT in FY22.

Its analyst Walter AW forecast F&N’s operating outlook to improve in the first quarter of 2022 based on improved market climate post-pandemic.

“We expect F&N operating outlook to improve on the lifting of Covid-19 lockdown measures, recovery in business activities in the group’s key markets (Thailand and Malaysia) especially from the hotel, restaurant and café (HORECA) segment which estimated to bring 30%-35% of the group’s total FY21 sales and reopening of Thailand’s borders for tourism starting Nov 1.

“Coupled with higher economies of scale and better cost control, F&N should be more than able to offset any rising input costs,” he wrote in a research note last week.

The broker maintained its ‘Add’ call on F&N with a raised target price of RM29.80 based on its valuation trading at 18.7% discount to its five-year mean of 26.5 times, strong balance sheet with net cash of RM579 million as at end FY21 and the ongoing recovery in HORECA sales.