PETALING JAYA: The impeding excise duty on sweetened beverages, starting from April 1, 2019, will have a minimal impact on Fraser & Neave Holdings Bhd’s (F&N) bottom line, according to MIDF Research.
This is due to the lower overall contribution of soft drink segment to the group’s earnings and ongoing reformulation of the sugar content for most of its products to be below 5.0% while maintain the same tastes, the research house said.
However, MIDF Research said despite the challenging domestic market condition in view of competitive price pressures and intensifying competition, it believes that the group’s earnings growth will continue to grow, driven by the continued strong export growth and improved cost efficiency as a result of cost optimisation efforts.
It is maintaining a “neutral” call on F&N with a higher target price of RM33.78 from RM31.54.
Meanwhile, MIDF Research said the group’s normalised earnings for the first quarter of financial year 2019 (1QFY19), which came in higher by 15% to RM122.9 million, accounted for about 28% of the research firm’s and consensus full year FY19 earnings forecast.
Additionally, the research house said, post-transformation exercise, F&B Malaysia segment managed to record third consecutive quarter of positive growth by 33.8% year-on-year to RM154.1 million, albeit at a moderating pace.
The strong performance was mainly due to the earlier Chinese New Year festive sell-in for beverage products coupled with lower discount and favourable input cost for sugar, palm oil and dairy-based commodity.
However, these are partly offset by the higher packaging material costs, it added.