KUALA LUMPUR: Fraser & Neave Holdings Bhd (F&N)'s costs will rise RM5.7 million from the implementation of the new minimum wage next year and mandatory employees provident fund contribution for foreign workers.
CIMB Securities Sdn Bhd in its note today said F&N estimates that 27 per cent of its workforce will be affected by the minimum wage increase, set to take effect in February 2025, alongside the proposed mandatory Employees Provident Fund (EPF) contribution for foreign workers.
According to the company, this will result in an additional annual cost of RM5.7 million, representing 1 per cent of the projected core net profit for financial year (FY) 2025.
To mitigate rising labour costs, F&N has leveraged an automated storage and retrieval system (ASRS) warehouse, which contributed savings of RM24 million in FY24 due to reduced labour and energy expenditures, CIMB Securities said in a note.
The company anticipates that savings from the ASRS system will increase as sales volumes grow, underscoring F&N's emphasis on automation to support profitability amid tightening labour regulations.
Meanwhile, CIMB Securities projects slightly negative earnings growth of -2.3 per cent in FY25, followed by moderate gains of 2.8 per cent and 1.9 per cent in FY26 and FY27, respectively, as rising commodity costs and the ongoing setup costs associated with the integrated dairy farm in Gemas are expected to cap earnings growth in the short to medium term.
Moreover, in response to the upcoming sugar-sweetened beverage (SSB) tax increase from RM0.50 to RM0.90 per litre in January 2025, F&N expects a minimal impact on its revenue, as under 1 per cent of its FY24 sales came from products subject to the SSB tax.
The company has indicated that it will absorb the additional RM1.2 million in costs to keep prices affordable but will continue developing low-sugar products to align with consumer health trends.
Overall, CIMB Securities has maintained its "Hold" recommendation on F&N, with a target price of RM32.30. The firm views F&N's current valuation as fair, given its strong market positioning in the F&B sector yet limited near-term earnings growth.