SINGAPORE (Feb 13): Phillip Capital is maintaining Fraser and Neave at "accumulate" with SOTP-based target price of $2.83 given its strong start into the year despite absence of Lunar New Year boost.

Phillip also expects FY18 forecast earnings to be supported by higher profit share from Vietnam Dairy Products Joint Stock Company or Vinamilk with full 12 months contribution in FY18, and benefits from restructuring initiatives to be realised.

"We expect Vinamilk to continue to drive over 40% of the group’s EBIT moving forward," says analyst Soh Lin Sin.

To recap, F&N's 1Q18 revenue and PATMI formed 26% and 17% of its full-year expectations, based on Phillip's valuations.

<hr/><a href="https://www.theedgesingapore.com/fn-reports-163-rise-1q-earnings-261-mil-vinamilk-contribution">See: F&N reports 16.3% rise in 1Q earnings to $26.1 mil on Vinamilk contribution</a><hr/>

The dairies division continued to buoy profitability amid higher input prices and weaker performances in beverages. 1Q18 Dairies EBIT jumped 28.1% y-o-y, driven by Vinamilk.

Vinamilk contributed $17 million or 33% to 1Q18 EBIT. The group continues to add Vinamilk shares throughout the quarter. F&N currently holds 19.5% stake in Vinamilk, up from 18.74% in 4Q17. It has recently registered its interest to acquire an additional 1.0% from the open market.

The publishing and printing division registered its second consecutive quarter of profits, on improved operating efficiencies and cost rationalisation measures. The newly acquired Penguin Random House and Penguin Books Malaysia also made its maiden profit contribution.

Meanwhile, the group will continue to reinvest its earnings into brand building efforts in new markets, namely Myanmar, Vietnam and Indonesia, adding new avenues for growth.

As for the negatives, the group saw weaker beverages performance in Malaysia and Singapore due to seasonality. There was a two-week shift in sell-in window for 2018 Lunar New Year festive season compared to 2017.

The upcoming general election in Malaysia could also further weigh against consumer sentiment and ringgit’s strength.

Earnings were hurt by higher input costs – mainly sugar, skimmed milk powder and packaging costs; and higher finance costs – the group has turned into net debt position with gearing at 9.1% on borrowings to finance the acquisition of Vinamilk shares.

As at 10.40am, shares in F&N are up 2 cents at $2.41 or 23.1 times FY18 forecast earnings.

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Fraser and Neave kept at 'accumulate' on Vinamilk FY18 support

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