Fraser & Neave Holdings Bhd (KLSE: 3689.KL) is listed on Bursa Malaysia, the stock exchange of Malaysia, and it is an important subsidiary of the Singapore-listed Fraser and Neave Limited (SGX: F99). In the 12 months ended 30 September 2016, the former accounted for around three-quarters of the latter?s profit after tax.
The Malaysian company, which is a major player in Malaysia?s beverages and dairy products market, has grown its net profit by a respectable 10.4% per year from its FY2006 (fiscal year ended 30 September 2006) to FY2016.
But, can Fraser &…
Fraser & Neave Holdings Bhd (KLSE: 3689.KL) is listed on Bursa Malaysia, the stock exchange of Malaysia, and it is an important subsidiary of the Singapore-listed Fraser and Neave Limited (SGX: F99). In the 12 months ended 30 September 2016, the former accounted for around three-quarters of the latter’s profit after tax.
The Malaysian company, which is a major player in Malaysia’s beverages and dairy products market, has grown its net profit by a respectable 10.4% per year from its FY2006 (fiscal year ended 30 September 2006) to FY2016.
But, can Fraser & Neave Holdings continue growing in the future? I think it can. And, here are the three different ways the company can do so:
1. Organic growth
Fraser & Neave Holdings is the leader in most of the product categories that it has a presence in. Some examples of the company’s products that occupy pole position in their respective markets are 100 Plus, F&N Condensed Milk, and F&N Seasons.
As such, Fraser & Neave Holdings is in a good position to (a) grow organically with the natural expansion of the packaged beverages industry, and (b) take market share from its competitors. To lend further weight to the idea that the packaged beverages industry has years of growth ahead, the major countries that Fraser & Neave Holdings operates in – Malaysia and Thailand – are developing economies that have been experiencing steady economic growth in recent years.
2. Growing exports
Fraser & Neave Holdings has been working on expanding its exports business in the past few years. Today, the company’s products can be found in over 49 countries.
To bolster its long-term growth, the company has taken various steps to strengthen its exports business, such as by focusing intently on supplying beverages to halal markets. The export opportunity is huge for Fraser & Neave Holdings. For instance, the company’s sales in China in FY2016 was less than RM 4 million.
3. Operational excellence
The company’s focus on operational excellence can also help grow its bottom-line. Operational excellence deals with improvements in the company’s manufacturing efficiencies.
Examples of operational excellence given in Fraser & Neave Holdings’ latest annual report are:
(1) a “10 per cent increase in production line efficiency”
(2) a “10 per cent reduction in energy consumption”
(3) a “more than 50 per cent reduction in consumer product complaints”
(4) “RM5 million in savings from material loss reduction”, and
(5) “RM2 million in savings from reduction in external service maintenance”
As mentioned earlier, Fraser & Neave has been growing its profits sustainably over the past 10 years. The company’s past performance is no guarantee of its future ability to increase its profits. But investors can find some comfort knowing that there are three obvious ways Fraser & Neave Holdings can generate more profits over the long-term in a sustainable manner.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.