F&N (3689) : Fraser & Neave Holdings - Boosting market share in a competitive industry
Target RM24.52 (Stock Rating: ADD)
F&N highlighted during its analysts’ briefing that it would continue to defend and increase its market share by increasing its distribution network and improve its product mix, as well as introduce more new products. We maintain our FY15-17 earnings forecasts and DCF-based target price. We also maintain our Add call on the stock, with more product cross-selling and the recovery of margins in Thailand as the potential re-rating catalysts.
What Happened
We attended F&N’s 4QFY14 results briefing hosted by Dato’ Ng Jui Sia who is the CEO, F&B (non-alcoholic) of F&N Group. About 20 analysts attended the briefing which started with a presentation by Dato’ Ng who explained the FY14 results and outlook for the company. Key takeaways from the briefing are: (i) despite having large market shares in both Malaysia and Thailand, and being in a competitive industry, F&N’s sales volume growth remains strong; (ii) better product mix, effective marketing efforts and lower trade discounts, as well as lower raw material cost helped to boost margins; (iii) more product crossselling to be seen next year; and (iv) phase 1 of Fraser Square will be launched within the next six months, with earnings contributions expected in 3-4 years.
What We Think
We concur with management’s view that volume growth in all markets have been impressive, especially in light of the competitive market landscape and its current large market share. In 2015, while the operating environment will be challenging given the higher living costs (due to the implementation of GST and subsidy cuts), we believe F&N could still deliver encouraging results driven by the launch of new products and lower raw material costs. The higher operating efficiency of its new Pulau Indah plant could also help to improve margins. Although the company is likely to pass on the 6% GST to endconsumers, hence raising the selling prices of its products, we do not think this would pose a substantial risk to its market share given that most of its competitors will do likewise.
What You Should Do
Accumulate. F&N is currently trading at 20-21x FY15-16 P/E which we think is attractive given its strong brand name and leadership position in the industry. There could be upside potential to our earnings forecast if raw material prices decline further.
Source: CIMB Daybreak - 10 November 2014
Target RM24.52 (Stock Rating: ADD)
F&N highlighted during its analysts’ briefing that it would continue to defend and increase its market share by increasing its distribution network and improve its product mix, as well as introduce more new products. We maintain our FY15-17 earnings forecasts and DCF-based target price. We also maintain our Add call on the stock, with more product cross-selling and the recovery of margins in Thailand as the potential re-rating catalysts.
What Happened
We attended F&N’s 4QFY14 results briefing hosted by Dato’ Ng Jui Sia who is the CEO, F&B (non-alcoholic) of F&N Group. About 20 analysts attended the briefing which started with a presentation by Dato’ Ng who explained the FY14 results and outlook for the company. Key takeaways from the briefing are: (i) despite having large market shares in both Malaysia and Thailand, and being in a competitive industry, F&N’s sales volume growth remains strong; (ii) better product mix, effective marketing efforts and lower trade discounts, as well as lower raw material cost helped to boost margins; (iii) more product crossselling to be seen next year; and (iv) phase 1 of Fraser Square will be launched within the next six months, with earnings contributions expected in 3-4 years.
What We Think
We concur with management’s view that volume growth in all markets have been impressive, especially in light of the competitive market landscape and its current large market share. In 2015, while the operating environment will be challenging given the higher living costs (due to the implementation of GST and subsidy cuts), we believe F&N could still deliver encouraging results driven by the launch of new products and lower raw material costs. The higher operating efficiency of its new Pulau Indah plant could also help to improve margins. Although the company is likely to pass on the 6% GST to endconsumers, hence raising the selling prices of its products, we do not think this would pose a substantial risk to its market share given that most of its competitors will do likewise.
What You Should Do
Accumulate. F&N is currently trading at 20-21x FY15-16 P/E which we think is attractive given its strong brand name and leadership position in the industry. There could be upside potential to our earnings forecast if raw material prices decline further.
Source: CIMB Daybreak - 10 November 2014
