PETALING JAYA: Fraser & Neave Holdings Bhd’s (F&N) growth prospects will continue to ride on its cost efficiency and price hikes, say analysts.

       According to CGS-CIMB Research, the F&N group is expected to post stronger results from the second quarter of financial year 2022 (Q2 FY22) onwards, thanks to the recovery in hotel, restaurant and cafe (Horeca) sales, price hikes and higher economies of scale.

       In its latest report, the research house maintained an “add” call to F&N with an unchanged target price (TP) of RM29.80.

       “Our ‘add’ call is backed by the group’s attractive valuation with a strong balance sheet of RM554.1mil net cash as at end of Q1 FY22.

       “F&N is also a beneficiary of the lifting of lockdown measures, especially ongoing recovery in Horeca sales, which accounts for about 30% of its total sales,” said CGS-CIMB Research.

       On the group’s latest Q1 FY22 results, the research house deemed its performance as “in-line at 26% of our and 28% of Bloomberg consensus’ full-year expectations”.

       F&N core net profit came in at RM117mil, after excluding one-off losses of RM23.9mil mainly due to the floods last December.

       The 16.7% year-on-year decline in the core net profit for Q1 FY22 was due to higher input costs and an increase in marketing spend, especially in Thailand.

       As expected, no dividend was declared for the quarter under review.

       Meanwhile, Kenanga Research, said F&N is poised for growth moving forward.

       “Premised on the easing of restrictions, coupled with incoming festivities and pent-up demand, we see robust and sustained earnings ahead,” it said.

       The group’s investment into the Sri Nona Group has proven its worth in the 2021 festive season, which is likely to continue in the coming festivities.

       Sri Nona is providing it the platform to venture into the halal food segment. It also has more product offerings and is likely to expand its halal exports in the Middle East and North Africa region and Asean, added Kenanga Research.

       Despite the prevalent headwinds, the research house said the encouraging momentum of recovery in economic activities will continue to drive sales for the years ahead

       This is particularly for the beverages and ready-to-drink business, out-of-home and Horeca channels.

       However, the rising input costs is a dampening factor and leading indicators show that input prices may only recede in the second half of 2022.

       Post results, Kenanga Research has revised downward the group’s estimated FY22 numbers by 24% on the account of elevated input costs, flood impact and the prosperity tax to RM299mil.

       The research house, which reiterated an “outperform” call on F&N, has raised the stock TP to RM34.25 from RM32.45 previously.

       “We feel this is justified given its robust topline despite the pandemic as it’s sustained by its venture into the halal food segments and growing exports fuelled by the ease of lockdown,” it noted.

       Furthermore, its strong net cash position will easily absorb additional costs to sustain sales.