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Wednesday, May 9, 2012

F&N sees revenue from property development in FY16

KUALA LUMPUR: Fraser & Neave Holdings Bhd (F&N) will start seeing a new revenue stream from property development come its financial year ending Sept 30, 2016, as it will be launching a RM1.6bil mixed development in its ex-dairy premises in Section 13, Petaling Jaya, in June 2013.

“Currently this 13-acre land houses F&N's dairies production plant. Site preparation works will begin this September, and will see a mixed development which consists of an F&N tower, a hotel, offices, retail outlets and residential suites by June 2013,” F&N chief executive officer Datuk Ng Jui Sia told a media briefing yesterday.

For F&N Dairies Malaysia, production of its new Pulau Indah facilities in Klang has just commenced, and the shift from its plant in Section 13 to Pulau Indah is expected to be completed by September.

F&N is partnering FCL Centrepoint Pte Ltd, a subsidiary of Frasers Centrepoint Ltd (FCL), to develop this ex-dairy premises.

FCL is one of Singapore's top three residential property developers and retail mall owners and operators. It has also developed properties and malls in the UK, Australia, New Zealand, Thailand, Vietnam and China.

F&N had divested 50% of its interest in this development land to FCL and recognised RM55mil in the quarter to March 31, 2012, being 50% of the capital gain of RM110mil.

Meanwhile, most analysts concurred that F&N's earnings would pick up in the second half, but many were still uncertain of its prospects. While the soft drinks segment is doing well, the dairies segment both in Malaysia and Thailand is still uncertain, driven by high raw material costs, and downside bias from its flood recovery.

“F&N is an extremely well-run company and I think they are doing the best they can. However, Malaysia is also a pretty matured market for dairy products. We don't expect to see huge growth in these segments. It will be stable in line with market at best,” said one consumer analyst.

F&N's second-quarter ended March 31 net profits declined by 18.89% to RM107.06mil from RM131.99mil in the previous corresponding period as revenue dropped to RM730.43mil from RM1.01bil previously.

It also declared an interim dividend of 20 sen, which will be paid on Aug 1.

Ng said the key declines came mainly from the cessation of the Coca-Cola business, the 200-day flood disruption in Thailand and higher raw material cost and competitive pressure in the Malaysian dairy operations.

Sales in Thailand dropped by half as production stoppage disrupted supply to the market. The Rojana factory in Thailand recommenced operations in March and ramped up to full capacity in April.

Dairies Thailand's factory was affected by floods, leading to a 52% slump in its first-half revenue to RM231mil. As a result of the lower sales volume, the factory could not cover its overheads, causing an operating loss of RM30mil.

“Even though we should see a stronger second half as Dairies Thailand resumed production in March, we cut forecasts to account for pricier raw materials,” said CIMB Research analyst Foong Wai Mun.

F&N made a cumulative write-off of RM89.44mil for the current two quarters. Interim property damage insurance claims based on current replacement cost accepted by insurers and recognised to date were RM80mil, of which the insurers had disbursed RM74mil in payments.

On a half-year basis, F&N's net profits dropped by 37.7% to RM148.8mil from RM239.07mil on the back of lower revenue, which declined to RM1.47bil from RM2.04bil previously.

F&N mitigated the loss of the Coca-Cola contract by raising its soft drinks revenue without Coca-Cola) by 8%, driven by higher sales of Seasons, Redbull and its new products (Zesta and Clearly Citrus).

Ng added that F&N was rethinking its fruit juice segment as it was also not growing.

“Revenue was also helped by market penetration into Brunei and contract packing for exports to its sister company in Singapore. However, operating profit margins fell 7.6% to 9.3% due to higher commodity prices, especially for sugar,” said Foong.

Meanwhile, Maybank analyst Kang Chun Ee said that until the shift to Pulau Indah, expected to be completed by September, F&N would continue to see rising operating costs as a result of a duplication in operations.

A deferred tax assets (DTA) of RM55mil in relation to the halal hub tax incentive was granted to the plant and the estimated balance of RM21mil in DTA would be recognised in the second half of this year, said Kang.

By The Star

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