MARC Ratings has affirmed its ratings of AAAIS(cg) /MARC-1IS(cg) on F&N
Capital Sdn Bhd’s Islamic Medium-Term Notes (IMTN) and Islamic Commercial Papers (ICP) programmes with a combined limit of up to
RM3.0 billion. The ratings outlook is stable. F&N Capital is a funding vehicle of Fraser & Neave Holdings
Bhd (F&NHB) which has provided an unconditional and irrevocable corporate guarantee on the programmes.
The affirmed ratings are driven by F&NHB’s strong revenue generation from its well-established dairy and beverage lines in Malaysia and
Thailand, as well as its very low leverage and high liquidity positions.
For the first half of the financial year ending September 30, 2022 (1HFY2022), group revenue increased by 1.8% y-o-y to RM2.2 billion with the Malaysian and Thai
operations contributing about 54% and 46%. However, due to sharp increases in raw material prices and packaging costs,
group pre-tax profit declined by 26.2% y-o-y to RM220.1 million. Accordingly, operating profit margin fell to 9.8% in
1HFY2022 from 13.6% in 1HFY2021. We understand that to ease margin pressures going forward, the group will adjust product
pricing gradually.
Its performance in 1HFY2022 was also affected by the shutdown of its Shah Alam plant during the December 2021 floods. This led to a low cash flow from operations (CFO) of RM10.8 million, which is expected to rebound
in 2HFY2022.
Aside from maintenance and ongoing upgrading of its plants and warehouses in both Malaysia and Thailand,
capex is expected to be moderate in FY2022. F&NHB has very low borrowing levels, with only RM1.0 million outstanding under
the rated programme as at end-1HFY2022. It has healthy cash holdings of RM319.9 million. Relative to CFO generation, dividend
payout has been moderate, averaging RM215 million p.a. over the last five years. We continue to view the group’s considerable
scale to provide operating stability and drive significant cash flow generation.