This is a personal weblog, reflecting my personal views and not the views of anyone or any organization, which I may be affiliated to. All information provided here, including recommendations (if any), should be treated for informational purposes only. The author should not be held liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein.
Monday, February 13, 2012
F&N- sailing thru rough waters!
Results Update
Since my last update in May 2011, F&N had gone through a tough time. The latest quarterly results is a continuation of the difficult period. Its net profit dropped by 37% q-o-q or 61% y-o-y to RM42 million while turnover was lower by 25% q-o-q or 28% y-o-y to RM743 million. The lower profit was attributed to the loss of the Coca-Cola franchise & losses in Thailand due to the flood.
Table: F&N's last 8 quarterly results
Chart 1: F&N's last 21 quarterly results
Prospects Going Forward
The impact of the loss of the Coca-Cola franchise had been factored into F&N's financial performance a few quarters ago. The unexpected events were the flood in Thailand (for QE31/12/2011) and, provision for under-payment of royalty for a dairy product of RM11 million (QE30/9/2011). I believe these surprises are one-off events, which are not likely to recur.
Going forward, the Olympic 2012 in London will be a positive event which would boost the sale of soft drink. As such, I expect F&N's top-line & bottom-line to stabilize for the next two quarters & stage a rebound in QE30/9/2012.
Valuation
F&N (closed at RM17.30 last Friday) is now trading at a PE of 19.5 times (based on last 4 quarterly EPS of 88.54 sen). At this PE multiple & given the mildly negative outlook for next two quarters, I believe F&N may trade lower to a PE of 17-18 times (to RM15-16 a share).
Technical Outlook
F&N appeared to have make a top near the RM20 mark recently. It is now testing the 20-month SMA line at RM16.60. If this support cannot hold up the share price, it may test the 30-month SMA line at RM14.70. Over the past 10 years, F&N had tested the 30-month SMA line once and that was in 2009 when Coca-Cola announced that it would not renew the Bottler’s Agreements and the Distributor’s Agreement with F&N upon expiry on 26 January 2010.
Chart 2: F&N's monthly chart as at Feb 2, 2012 (Source: Tradesignum)
Conclusion
Based on the above, I would rate F&N a trading SELL. This means that you may sell the stock now and buyback when the share price had traded lower at about RM15.00.
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