KUALA LUMPUR: Fraser & Neave Holdings Bhd plans to set aside RM1.7 billion in capital expenditure for its integrated dairy farm called F&N AgriValley in Gemas, Negri Sembilan.
F&N had completed the social impact study of the project, with land clearance and site preparation of the dairy barn site near completion, according to its chief executive officer Lim Yew Hoe.
The company had also selected the first batch of dairy cattle on schedule to meet the farm's first milking target date of early 2025, Lim told a briefing on F&N's latest interim results here today.
"For Phase 1, the company will start bringing in 2,000 cows with a milk processing capacity that can produce 100 million litres per annum," he added.
The project is slated to begin the first milking by early 2025 with F&N eyeing to break even in three years.
Lim noted that the dairy farm, which spreads over 2,726 hectares, will also plant corn as a feedstock for the cows.
The company plans to export to other countries after three years of operation, eyeing Hong Kong, Macau and the Middle East in the near future.
"For the first two or three years, we will focus on Malaysia, Singapore and Cambodia," he said.
The Ladang Permai Damai dairy farm project is part of F&N's plan to become one of the largest milk producers in Malaysia.
F&N ended its second quarter on March 31 2024 with a higher revenue by 12.1 per cent to RM1.35 billion from RM1.21 billion a year ago.
The performance was driven by continuing momentum for both F&B Thailand and F&B Malaysia, festive sales in Malaysia and aided by favourable foreign exchange translation from stronger Thai baht.
The group's net profit increased 62.5 per cent to RM165.7 million (Q2 FY2023: RM102.0 million) from higher profits, although moderated by higher interest costs and tax expense.
F&B Malaysia recorded an 11.3 per cent increase in Q2 FY2024 revenue to RM787.7 million compared to the same period last year.
Lim credited F&N's performance to strategic decisions taken over the past few years, to sustain growth in its existing food and beverage sector while assimilating new ventures and embarking its integrated dairy division.
"Despite challenging market conditions, our strategic choices have proven effective. Crucially, we regained volume growth in sales of our key products. Our investments in supply chain optimisation and solar PV system have also yielded long-term benefits in cost and operational efficiencies and carbon footprint reduction," said Lim
Given that performance in the first half of the year was heavily skewed to festive sales, F&N is
mindful of performance in the second half.
Lim said although F&N had benefited from an overall improvement in commodity prices, it expects challenges with the rising costs of raw materials such as sugar, rice, gelatine and cocoa powder.
He said prices of most commodities have stabilised except for cocoa powder, gelatine, tinplate, palm oil, white rice and sugar, which remain high.
As of February 2024, the prices of gelatine surged to US$8,370 (RM39,670) per tonne, cocoa powder soared to RM16,450 per tonne, sugar increased to RM3,195 per tonne while white rice rose to RM3,700 per tonne.
The company was affected by about RM5 million due to the higher price of gelatine, Lim said.
"The high cost of gelatine will hit us the most. The good news is that we probably have a bit more inventory because we bought more of it last year. When the inventory runs out next year, we will be even more (impacted)," he said, adding that the ingredient is highly used in its Cocoaland brand of products.
F&N was also impacted by between RM3 million and RM4 million a year from the higher price of cocoa powder, about RM60 million from higher sugar prices and RM5 million due to the rising cost of rice.
In February this year, F&N announced plans to construct a manufacturing plant in Cambodia's Suvannaphum Special Economic Zone, through an estimated investment of US$37.5 million (about RM179.5 million) to strengthen its dairy product business via a new subsidiary, F&N Foods (Cambodia) Co Ltd.
Meanwhile, some analysts are optimistic about F&N's prospects this year.
Those at MIDF Research said F&N's upbeat outlook will be supported by strong out-of-home beverages consumption, return of leisure and business tourists to Thailand and Malaysia, and lower raw material input costs.
F&N may also benefit from the shift in Malaysian consumer preferences towards local brands.
"We also like the group's initiative in the integrated dairy farm to improve self-supply and cater for underserved fresh milk market in Malaysia," the firm said.
Kenanga Research's Cheow Ming Liang said F&N's first-half 2024 core net profit of RM332 million had beaten expectations, coming in at 61 per cent each of both its full-year forecast and the full-year consensus estimate.
The variance against Kenanga Research's forecast came largely from a favourable product mix, lower input cost and better operating efficiency.
The firm believes F&N may be benefitting from consumers opting for Asian brands versus the Western ones) and will continue to be buoyed by the return of tourists to Malaysia, boosting its domestic sales, and Thailand, boosting its export sales.
"We also like its focus on the high- growth Halal packaged food and dairy products while the streamlining of the manufacturing facilities of Sri Nona and Cocoaland should boost efficiency and hence the bottom line," Cheow wrote.
Kenanga Research raised its FY24 and FY25 net profits by 12.9 per cent and 13 per cent
respectively, after raising its assumptions on sales and margins.