Higher OOH beverage consumption a boon for F&N

PETALING JAYA: Fraser & Neave Holdings Bhd (F&N) stands to be the key beneficiary of higher out-of-home (OOH) beverage consumption amid the current heatwave across South-East Asia, says MIDF Research.

This is due to the group’s strong market leadership among the food & beverage (F&B) players in the region, it said in a report.

Based on the Retail Index Service, F&N holds the top position in ready-to-drink tea, carbonated soft drinks, evaporated milk and sweetened condensed milk in Malaysia.

The group is also recognised as the No. 1 brand for condensed milk, evaporated milk and sterilised milk in Thailand.

MIDF Research said: “We expect the extreme weather will lead consumers to seek refreshing and convenient options to stay hydrated and cool, thereby increasing the demand for ready-to-go (RTG) drinks and out-of-home beverages.”

The research house is also positive about the group’s financial year 2024 prospects.

This will be underpinned by strong OOH beverage consumption, supported by the heatwave across parts of South-East Asia, return of leisure and business tourists thanks to the visa-free exemptions from both Thailand and Malaysia, lower raw material input costs thanks to normalised commodities price as well as benefit from the shift in Malaysian consumer preferences towards local brands.

Meanwhile, the research house expressed optimism on F&N’s plan to launch an integrated upstream fresh milk business, with Phase 1 aiming to produce 100 million litres of fresh milk in Gemas, Negri Sembilan. The first milking is expected in early 2025.

“This initiative enables the group to achieve self-supply and reduce operating costs,” it said.

F&N currently sources externally with existing household liquid milk brands such as F&N Magnolia, Farmhouse, and Bear Brand.

“Nevertheless, the target of achieving total production of 200 million litres of fresh milk following the completion of all phases would also provide the group with greater capacity to cater to local and international markets and hence expand revenue,” MIDF Research added.

It noted that F&N’s parent company, Fraser & Neave Ltd, holds stakes in Vinamilk, which is the largest dairy company in Vietnam that could offer valuable market insights for F&N’s engagement in the upstream dairy farm.

Hence, MIDF Research has maintained a “buy” call on the stock with a revised target price of RM37 from RM33.50 previously.

F&N is currently trading at an attractive FY24 price-to-earnings ratio of 18.9 times while offering a potential dividend yield of 2.5% in FY24.

The downside risks include disruption to global supply chains for commodities resulting from avoidance of the Suez and Panama Canals, ongoing congestion at major Brazilian ports, climate change in key producing countries as well as fluctuation in the currency rates, namely Thai baht and US dollar.