F&N downgraded to hold as Q3 profit misses expectations
F&N's Q3 net profit was RM98.3 million, after adjusting for RM13.5 million in one-off items (mainly comprising forex losses of RM9.8 million and receivables impairment of RM2.8 million).
CIMB Securities said the results fell short of expectations, as the nine months (9M) of financial year 2025 (FY25) net profit of RM399 million accounted for only 73.6 per cent/68.9 per cent of the firm's/consensus FY25 forecasts, respectively.
"The negative variance was largely due to wider-than-expected losses from its integrated dairy farm, weaker-than-anticipated sales in Malaysia and Thailand and a higher effective tax rate of 34.4 per cent, likely due to dairy unit underperformance," it said.
CIMB Securities expects F&N to post a flattish quarter-on-quarter (QoQ) result in Q4 FY25.
While Malaysian sales should recover from the low base in Q3, the firm said this is likely to be offset by softer performance in Indochina due to Thailand-Cambodia border disruptions affecting exports to Cambodia and reduced tourist arrivals in Thailand.
"However, the recent strengthening of the ringgit should lead to lower input costs, and internal cost optimisation initiatives should help cushion ongoing dairy farm losses.
"In addition, we expect the effective tax rate to normalise in Q4 FY25, supported by the recognition of deferred tax assets to offset losses from the company's dairy farm operations," it said.
In view of the recent share price appreciation (14.9 per cent in the past six months), CIMB Securities has downgraded F&N to Hold from Buy.
The firm believes that current valuations have largely priced in the defensive nature of its business, while earnings prospects remain muted in its view (three-year core net profit of 2.4 per cent).
"Our target price is lowered to RM28.80 after revising down our earnings per share estimates," it added.
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