SINGAPORE (Nov 10): DBS Vickers Securities is maintaining its “hold” recommendation on Fraser and Neave Holdings (F&N) with a revised sum-of-parts-based target price of $2.36.

While the food and beverage conglomerate on Monday posted a FY16 earnings decline of 83% to $108.1 million, its overall financial results still came in above DBS’s expectations with a 73% y-o-y core net profit growth to $109 million.

(See also: F&N’s FY16 earnings decline 83% to $10.8 mil on absence of gain on disposal)

“The strong surge in net profit came about from robust margins enjoyed by its dairies division, income from investments, interest income and lower-than-expected taxes in 4Q16,” observes DBS analyst Andy Sim, who believes this represents a peak in margins for the group.

The analyst expects margins to moderate going into FY17F as raw material prices have been progressively creeping up. He hence projects FY17F EBIT margins to soften to 5.4% from 6.5% in FY16.

Despite the subdued profit outlook and expectations of margin compression, Sim is in the view that F&N’s share price should be supported by its cash hoard, coupled by its holdings.

F&N’s balance sheet remains strong and in net cash with some $700 million available for deployment – and this has led Sim to conclude that funding could entail utilisation of the group’s internal cash, debt, and possibly equity fund raising.

DBS also continues to anticipate F&N’s management to deliver on its acquisition plans to supplement its growth sources, which would aid in its overall growth profile.  

“We believe management is likely to pursue opportunities in the IndoChina region,” says Sim.

Shares of F&N are trading flat at $2.13.