KUALA LUMPUR: Rising input prices are expected to chip away at Fraser & Neave Holdings Bhd's (F&N) bottomline even as the lifting of movement restrictions bolsters its sales performance.
In a research note, Kenanga Research said it expects a "robust and sustained" topline in subsequent- quarter results due to the country's transition to an endemic phase.
"Despite the prevalent headwinds, the encouraging momentum of recovery of economic activities will continue to drive sales ahead, particularly for beverages, ready-to-drink products, out-of-home and HORECA channels.
"Rising input costs is the only dampening factor with leading indicators showing input prices looking only to recede in 2HCY22," it added.
The research firm noted that F&N's 1HFY22 profit after tax and minority interests (Patami) of RM187mil accounted for 62% and 46% of its and consensus full-year estimates.
It attributed the positive deviation from its estimates to the lower-than-expected impact of the Prosperity Tax.
Following the easing of movement controls, the F&B group recorded an improved revenue during the six months period, although its Thailand operations was weighed down by the unfavourable Thai Baht to ringgit currency exchange.
"For F&B Thailand, sales continued to grow through new product introductions, promotions, expansion of distribution coverage but were offset by lower traffic at HORECA channel and modern trade outlets.
"Overall GP margin (26% in line with our estimates) shrunk by 4ppt mainly caused by F&B Thailand due to inability to pass rising inputs costs (compounded by price control)," said Kenanga.
The research firm revised its FY22 earnings forecast higher by 10% to RM330mil due to lower impact from the Prosperity Tax.
However it slashed FY23 forecast by 22% as it reduced its gross profit margin by 3 percentage points and impute higher depreciation and amortisation costs on account of higher capex following the acquisition of Ladang Permai Damai.
"Moving forward, we reduced our TP to RM26.30 (from RM34.25 previously) on FY23 PER of 28.3x (5-year mean)," said Kenanga, while reiterating "outperform" on the stock.