F&N receives mixed rating calls

by **hlk** Mon 08 Aug 2011, 23:35

MIDF Research is tweaking the earnings forecasts on Fraser and Neave Holdings Bhd (F&N) by 6.7 per cent in the financial year 2011 while a negative 7.9 per cent for financial year 2012.

This was due to better-than-expected soft drink sales in the financial year 2011, housekeeping activities like the sale of its college building at the Fraser Business Park, disposal of its wholly-owned subsidiary, Brampton, and KLG factory land sale.

The adjustment of a negative 7.9 per cent reflected the absence of coca-cola's contribution in financial year 2012, it said in a research note today.

MIDF Research has downgraded its "neutral" recommendation to "sell" on F&N, with a lower target price of RM14.54 per share from RM18.75 previously.

Meanwhile, AmResearch Sdn Bhd has maintained a "buy" call on F&N.

"Though the effects of the higher runaway costs should kick-in over the new few quarters, we reckon F&N would be able to weather them comparatively better compared to other food and beverages due to its focus on niche markets and superior pricing power, it said.

AmResearch said it continued to like the stock for its strong earnings profile within the mostly non-discretionary food industry, as underpinned by its market share leadership positioning and brand equity strength.

It expects the first quarter of the financial year 2012 to reflect softer earnings from the soft drinks division with the expiry of the transition agreement with coca-cola by next month.

"However, we believe the impact would be short-term and relatively subdued given the group's preparations over the last 18 months," it said.

Part of the earnings vacuum has been partially replaced by the Red Bull distribution rights, new tea variants and juice beverages in polyethylene terephthalate (PET) bottles.

AmResearch said the dairies division is expected to be largely driven by rising production volume on the back of higher utilisation rates at the Rojana dairy plant in Bangkok as F&N increases exports to Indo-China countries.

Furthermore, capacity boost from the upcoming Pulau Indah dairy plant would fuel earnings further, it added. -- Bernama