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Malaysia: Kenanga lowers forecast on F&N, TP at RM35.15
KUALA LUMPUR: Robust demand growth from FRASER & NEAVE HOLDINGS BHD 
‘s Thai operations is expected to be overshadowed by competition on the Malaysian scene.
Kenanga research reiterated its market perform recommendation on the stock but lowered its target price to RM35.15 following a downward revision in its earnings forecasts.
“We tweaked our FY20E/FY21E earnings downwards by 3.7%/2.5% to account for more conservative growth assumptions for Malaysia to -0.5%/0% (from 1% to 2% previously),” it said in a note.
However, Kenanga remains upbeat on F&N’s Thai F&B operations, which contributes to about 70% of the group’s total operating profit.
The research house expects the operations to continue leading growth owing to its continuous product innovation and strong brand presence as the market leader in the dairy segment.
In FY19, the Thai business recorded year-on-year (y-o-y) revenue and operating profit growth of 11% and 40% respectively. F&N is targeting 6% to 7% top-line growth for the Thai operations in FY20, versus Kenanga’s 4% to 5% estimate.
Moving forward, F&N is planning to bolster its presence in the Middle East and North Africa (MENA) region through establishing a new subsidiary in Dubai.
The group is targeting export revenue of RM100mil in the MENA region in 2020, contributing towards the group’s total targeted export revenue of RM800mil.
Kenanga is also positive over F&N’s plan to venture into an integrated dairy and crop farming project, which is expected to yield long-term benefits.
The fresh milk segment currently contributes a low single-digit percentage of F&N’s total revenue.
According to Kenanga, the venture would allow F&N to expedite its growth in the fresh milk segment on the back of more competitive cost advantages.
It added that there could be a growing consumer preference for fresh milk over imported powdered milk owing to changing consumer trends.
“All-in, we reiterate our view with this being a longer-term prospect, hence ruling out any earnings accretive development over the next two years,” it said.
Source: https://www.thestar.com.my/business/business-news/2019/11/07/kenanga-lowers-forecast-on-fn-upbeat-on-thai-operations#HHkb5itAWYdKH4vC.99