KUALA LUMPUR (Feb 7): CIMB Securities has upgraded Fraser & Neave Holdings Bhd (KL:F&N) to a 'buy' rating from 'hold', citing the company’s undemanding valuations following a recent share price retracement.

This upgrade follows a notable 15.1% decline in F&N’s stock price over the past three months, a movement that has positioned the company more favourably in terms of relative valuations.   

In a note on Friday, CIMB Securities was of the view that F&N’s valuations had turned attractive, with it trading at 17.3 times calendar year 2025 (CY2025) price-earnings ratio (PER), representing a 13.5% discount to its five-year mean PER of 20 times, and a 21.4% discount overall to the consumer sector’s CY2025 PER of 22 times. 

CIMB highlighted several factors that support its positive outlook on F&N, notably the company's strong market positioning in Malaysia and Thailand’s highly competitive food and beverage sectors.  

The research house also pointed to the defensive nature of demand for F&N products, which tend to be less sensitive to economic cycles, as well as the company's solid management track record as key drivers of its sustained performance. 

Despite the favorable valuations and outlook, CIMB has however tempered its expectations for the company's net profit in the coming year.  

For the financial year ending Sept 30, 2025 (FY2025), the research firm projects a 5.0% year-on-year (y-o-y) decline in F&N’s net profit, largely attributed to a higher effective tax rate, following the expiration of tax incentives for F&N’s operations in Thailand, and the anticipated start-up costs related to the development of a new dairy farm.  

Although CIMB forecast a modest 3.5% y-o-y growth in revenue for FY2025, these factors are expected to weigh on the company’s bottom line. 

CIMB also noted that F&N is in the process of developing the first phase of a new integrated dairy farm.  

The company is actively working to secure heifer deliveries for the farm over the next six to nine months, which is a key part of its strategy to ensure a stable and long-term supply of dairy products. 

Additionally, the research house anticipates some impact on F&N’s cost structure due to rising labour costs.  

Effective Feb 1, 2025, Malaysia has introduced a higher minimum wage of RM1,700, which will likely affect about 27% of F&N’s workforce, along with a proposed mandatory Employees Provident Fund (EPF) contribution for foreign workers.  

CIMB estimated that these measures could add RM5.7 million in annual costs for F&N in FY2025, or approximately 1.1% of its forecasted core net profit.  

The research house believes that F&N will likely focus on improving its cost efficiencies, in order to mitigate the financial impact of these changes.  

At the time of writing on Friday, F&N shares were unchanged at RM25.86, valuing the company at RM9.48 billion. 

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