SINGAPORE (May 9): DBS is maintaining a “hold” on Fraser & Neave with a target price of $2.37 as it awaits for profit contribution from its higher stake in Vinamilk to kick in in the second half.

The beer and soft drinks maker saw 2Q17 net profit fall 29% y-o-y to $8.5 million while revenue faced a 5.8% drop.

(See also: <a href="http://www.theedgemarkets.com.sg/fraser-and-neave-posts-67-fall-2q-earnings-38-mil" target="_blank">Fraser and Neave posts 67% fall in 2Q earnings to $3.8 mil</a>)

“Despite the drastic drop in net profit, with 1H17 accounting for 30% of our full year forecast, this is largely within our expectations…” says analyst Andy Sim in the Tuesday report, “we expect stronger profit contribution in 2H17, on the back of accounting for its increased equity stake in Vinamilk.”

Beverage sales were lacklustre in Singapore and Malaysia, with beverage revenue falling 21.5% on-year to $113.6 million. However, this was partially mitigated by the vending business which was acquired last July, commencement of third-party brands, and distribution network expansion in Myanmar.

The beverage segment suffered a pretax loss of $5.2 million due to weak performances from Malaysia and Singapore as well. According to Sim, this was caused by weaker volumes, higher raw material prices and a weaker Malaysian Ringgit.

The dairies segment managed counter the weak beverage performance, posting a strong performance with PBIT surging 41.7% on-year to $39.8 million due to lower commodity costs.

Stronger domestic sales in Sngapore, Myanmar and Thailand led to a 2.4% increase in dairies’ revenue to $271.6 million. However, this was partially offset by an 11.9% drop in revenue in Malaysia.

F&N shares are currently trading 4 cents lower at $2.36.

Waiting for Vinamilk

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Waiting for Vinamilk

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