Fraser & Neave - In line with expectations at half time Hold

-  Fraser & Neave (F&N) reported lower interim net profit of RM149mil (YoY: -38%) for 1HFY12, accounting for 50% of our full year forecast and 55% of consensus. We deem results to be broadly in line with expectations.

-  Management declared a single-tier interim dividend of 20sen/share this quarter, on par to the corresponding period in the previous year. No change to our DPS forecast of 67sen/share for FY12F.

-  Despite a 2% sequential contraction in revenue, 2Q pre-tax profit was up 8% to RM58mil. This was mainly attributable to a RM55mil property gain arising from disposal of its PJ Section 13 land which more than offset a lower contribution from seasonally-driven softer soft drinks sales volume, higher operating losses in Thailand and a provisional deficit in insurance claim of RM11.7mil.

-  On a YoY basis, 1HFY12 group revenue (excluding contributions from Coke) declined 17% largely due to a RM250mil impact from Thai floods and a 11% drop in dairies sales volume in Malaysia as a result of a price increase back in mid-2011. Fortunately, local dairies sales volume has begun showing signs of stabilising post some adjustment period by consumers. 

-  We take comfort of the group’s commendable soft drinks performance, with 1HFY12 segmental sales volume up 8% YoY (100PLUS: 11%, SEASONS: 6%, Red Bull: 29%). However, soft drinks PBIT remained flattish due to margin compression stemming from higher sugar costs.

-  Moving forward, we expect contributions from dairies to trail soft drinks division as full production recovery of Thai plant is expected to be in 2H, while relocation activities to Pulau Indah dairy plant will likely put pressure on operational efficiencies. The group commenced partial commercial production at its Pulau Indah dairies plant back in March. 

-  We maintain HOLD with an unchanged DCF-based fair value of RM18.10/share. Earnings growth is well underpinned by increased production capacity in the soft drinks and dairies divisions, while contribution from the mixed property development project with an estimated GDV of RM1.3bil will filter through in the next few years. As it is, management has targeted to kick-start marketing activities for Phase 1 in  2HFY13F upon a complete relocation of production lines to Pulau Indah by September 2012.   

Source: AmeSecurities