Hot Stock F&N shares hit all time high on positive outlook

by **Cals** Wed 30 Mar 2016, 02:14

Hot Stock

[size=28]F&N shares hit all time high on positive outlook

By Gho Chee Yuan / theedgemarkets.com | March 29, 2016 : 3:40 PM MYT

KUALA LUMPUR (March 29): Fraser & Neave Holdings Bhd's (F&N) share price hit a historical high today, after CIMB Research upgraded the beverage manufacturer's earnings forecast.

The research firm provided a positive outlook on F&N and advised investors to accumulate the stocks.

"F&N is trading at 17 to 18 times of its FY16 and FY17 price to earnings ratio (P/E), 20 to 24% below its five-year historical mean P/E of 22.6 times and peer average of 20 times to 21 times.

"We think the stock should re-rate closer to its 5-year mean P/E given its healthy 3-year earnings compounded annual growth rate (CAGR) of 16.1% versus 9% sector average, gross profit (GP) margin expansion on the back of lower raw material costs, and undemanding valuations, given its lead position in the ready-to-drink (RTD) market and strong brand name," it added in a note to clients.

At 2.34pm, F&N shares were up 34 sen or 1.72% at RM20.06. Volume, however, was thin with 38,300 shares traded, compared with its 65-day average trading volume of 187,674 shares.

F&N was the second top gainer on Bursa Malaysia. Year-to-date, the counter has gained RM1.91 or 10.52%, as compared to FBMKLCI's 6.01% decline.

The current price of RM20.06 represents a RM2.23 or 10% discount to the consensus target price of RM22.29.

CIMB Research raised F&N's earnings per share (EPS) forecast for the 2016 to 2018 financial years (FY16 to FY18) by 17%-22%, adding it was overly conservative on its earlier estimates.

"Although we expect a rather flattish top-line growth, we are expecting gross profit (GP) margins to expand by 2.4% in 2016 and 0.7% in 2017, on the back of lower raw material prices and lower trade discounts," said the research house.

CIMB Research's channel checks have revealed a gloomier milk price outlook on the back of increased milk production, as well as an overall softer global demand for dairy products, particularly in China.

"Thus, we continue to expect the group to deliver healthy earnings growth year-on-year (y-o-y) for its upcoming 2QFY16, given that milk prices have declined 32% y-o-y, which could potentially translate into cost savings as milk prices make up a significant portion of its total raw material costs," it added.

CIMB Research also did not rule out the possibility of a higher payout in FY16 to FY18, given the group’s improving fundamentals and growing payout ratio over the last few years.

"As at 1QFY16, the group was sitting on a strong net cash pile of RM160.6 million or 45 sen per share.

"Hence, we maintain our payout ratio forecast of 75% over the next three years, which translates into dividend yields of 4.2-4.7%," it added.

CIMB Research maintained its “add” rating for F&N, with a revised discounted cash flow target price of RM25.11, compared with RM26 previously.

Despite the stellar performance in its share price, analysts remained neutral on the stock. Two analysts tracking the stock have given a "buy" rating, while two others have issued a “hold“ call.
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