KUCHING: Fraser & Neave Holdings Bhd (F&N) is expected by analysts to have better first half of 2014 (1H14) results, given the improving dairy business in Malaysia and strong dairy sales growth in Thailand, among others.
According to the research arm of CIMB Investment Bank Bhd (CIMB Research), F&N’s dairy sales volume which accounts for 70 per cent of total sales is expected to be better in 1H14 year on year (y-o-y).
“In the past, the poor performance in Malaysia’s dairy business was not only due to intense competition, but from a heavy loading of inventory into the market by Nestle (Malaysia) Bhd (Nestle), before F&N took over the distributorship of condensed milk products from Nestle at end-2012,” the research arm noted.
Back then, CIMB Research noted that F&N Dairy was lacking a distribution monitoring system which led it to implement a new distribution measurement system (its soft drink business had been using this a long time ago) at end-2013 for its dairy business.
“The new system enabled the company to monitor its distributors’ trade discounts more closely and hence, improved its ability to price its products more competitively.
“Since then, the group has seen sales at its dairy segment improve and gain market share. F&N has more than 50 per cent market share in the local dairy market,” the research arm observed.
On the export front, it noted that F&N is on track to double export sales by FY18 with the main driver for exports being the halal markets such as the Middle East and North Africa. The research arm added that Hong Kong and Taiwan, which consume a lot of milk tea, have also been driving growth.
In terms of F&N’s dairy business in Thailand, CIMB Research noted that it is also performing well, with sales volume increasing by double-digit, thus increasing its market share.
“It is the market leader in Thailand, with more than 50 per cent market share in the evaporated milk and sweetened beverage-creamer categories.
“The group has recently increased investments in ‘above-the-line’ brand building,” the research arm added.
Aside from the boost from dairy sales, CIMB Research noted that the Chinese New Year festival, which fell on January 31, will help to boost sales in its soft drink segment. Hence, the research arm expects its 1H14 results to come in better y-o-y.
Touching on the soft drink segment, the research arm opined that the sales of Mycola, a new product similar to Coke and was launched at end-2012, are within expectations.
Mycola was launched to complete F&N’s Fountain range and is only available in Sabah, Sawarak and the west coast of Peninsular Malaysia as the company is taking a slow approach to penetrate the market.
“Hence, its market share is still negligible. Minimal advertising and promotion (A&P) has been spent on this new product as it is still at the trial stage,” it said.
Sales of Oishi, which was launched in Jun 13, is also within CIMB Research’s expectations, adding that it expects Oishi to be introduced into the modern trade channels very soon.
“The group will be launching more new products, which will primarily be line extensions. As in the past, we expect that minimal A&P will be spent on these new products,” the research arm opined.