F&N: Earnings soared

Result Update

For QE31/12/2015, F&N's net profit rose jumped by 167% q-o-q or 117% y-o-y to RM152 million while revenue was up 4.5% q-o-q or 1.6% y-o-y to RM1.05 billion. Profits increased partly  attributed to higher revenue, effective product/sales mix (particularly on its main brands) and pricing management and favorable milk-based commodity prices, insurance claim of RM4.1 million (from the East Coast flood) and recovery of withholding on royalties paid in previous years of RM8.5 million. Even if the 2 last items are excluded, the recurring net profit would still be very impressive at RM139 million- an increase of 145% q-o-q or 99% y-o-y!!


Table: F&N's last 8 quarterly results


Chart 1: F&N's last 37 quarterly results

Valuation
F&N (closed at RM18.56 yesterday) is now trading at a PE of 19 times (based on last 4 quarters' EPS of 98.9 sen). At this PE multiple, F&N is deemed fairly valued.

Technical Outlook

F&N has been range-bound for the past 4 years between RM16.00 and RM19.00.A breakout of this trading range would determine the direction of the price movement going forward.


Chart 2: F&N's monthly chart as at Feb 3, 2016 (Source: ShareInvestor.com)

Conclusion

Based on strong improvement in its financial performance and less-demanding valuation, F&N is upgraded from a HOLD to a long-term BUY.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, F&N.